L/BRARY 

"JNlVCRsiTY  OF 

CA!.:poRN/A 

SAN  DIEGO 


p-/|^. 


isieyGr-^ip 


PRINCIPLES 


OF 


Political  Economy. 


BY 


CHARLES  GIDE, 

Pmfkssor  of  Political  Economy  in  the  Unwesssttv  or 

MONTFELLIEK,  FkANCE. 


TRANSLATED  BY 

EDWARD  PERCY  JACOBSEN 

{Formerly  of  University  College,  London). 


®9H^  an  ^ntrolwrfion  anb  Djjlta 
By  JAMES  BONAR,  M.A.,  LL.D. 


* 


BOSTON,  U.S.A.: 

D.   C.  HEATH  &  CO..  PUBLISHERS. 

1902 


Copyright,  iSgr, 
B^D.  C.  HEATH  &  CO. 


PRINTED    IN 

UNITED    STATES 

OF   AMERICA 


INTRODUCTION. 


American  and  English  readers  will  welcome  the  translation  of 
Professor  Gide's  book.  It  is  neither  a  primer  for  beginners,  nor 
a  dissertation  for  the  learned,  but  a  guide-book  for  serious  students 
who  have  mastered  the  economical  alphabet,  and  are  feeling  their 
way  to  a  judgment  of  their  own  on  economical  subjects.  Its  place 
in  French  economic  literature  is  almost  unique.  It  is  helping 
many  a  young  Frenchman  to  turn  his  attention  to  economic 
theory,  and  to  study  it  in  the  light  of  the  latest  discussions. 
Professor  Gide  has  Adam  Smith's  faculty  of  making  his  readers 
think  for  themselves,  and  accept  no  conclusion  without  following 
out  the  process  that  leads  to  it.  He  lays  a  just  emphasis  on  the 
need  of  impartiality  and  freedom  from  prejudice.  In  a  book 
written  for  real  students  of  a  subject,  the  truth  should  be  told 
without  reserve  or  fear  of  consequences. 

Economists  familiar  with  recent  investigations  (Continental, 
American,  and  English)  of  the  doctrines  of  Value,  Wages,  Foreign 
Trade,  etc.,  will  not  always  agree  with  the  views  presented  in  this 
volume.  Students  will  do  well  to  supplement  its  somewhat  scanty 
references  to  current  economic  literature  by  such  a  bibliography 
as  that  which  is  given  by  Professor  E.  B.  Andrews  in  his  Institutes 
of  Econo7nics  (Boston,  1889). 

It  will  be  observed  that  the  schools  of  modern  economists  are 
(in  the  beginning  of  the  book)  so  classified  that  our  author  re- 


IV  INTRODUCTION. 

mains  outside  of  them.     His  position,  however,  is  substantially 

that  of  the  First  or  "Classical  School,"  if  we  substitute  evolution 

and  social  union   ("solidarity")    for  finality  and  individualism. 

Like  the  Classical  School,  he  recognizes  the  need  of  Theory  and 

(to  that  end)  of  Abstraction ;  and  the  theoretical  work  of  the 

Classical  School  is  in  great  part  the  foundation  of  his  own  new 

building. 

Political  Economy  in  the  hands  of  Professor  Gide  is  neither 

dismal  in  its  conclusions,  nor  dull  in  its  deliberations.     Though 

these  may  be  counted  adventitious  attractions,  they  will  be  keenly 

appreciated  by  most  of  his  readers.     In  point  of  style,  our  author 

has  few  rivals,  even  in  France. 

JAMES   BONAR. 
Hampstead,  London, 
14th  March,  1891. 


AUTHOR'S   PREFACE   TO   THE   THIRD 
[FRENCH]    EDITION. 


When  the  first  edition  of  this  work  appeared  in  1883, 1  refrained 
from  prefixing  any  prefatory  note,  for  I  thought  it  wiser  for  the 
book  to  introduce  itself  to  the  pubhc.  In  the  second  edition  I 
somewhat  sharply  repUed  to  some  severe  criticisms  which  had 
been  directed  against  the  tendency  of  the  treatise.  In  the  preface 
to  this  new  edition  complaints  are  out  of  the  question ;  all  that  I 
can  do  is  to  thank  the  public  for  the  favorable  manner  in  which 
the  book  has  been  received  both  in  France  and  abroad. 

I  have  endeavored  to  acknowledge  this  kind  reception  by  cor- 
recting and  supplementing,  to  the  best  of  my  powers,  the  weak 
points  and  deficiencies  which  have  been  brought  before  my  notice. 
However,  there  is  a  criticism  of  a  general  nature  which  has 
reached  me  from  various  quarters  and  has  proceeded  from  friends 
as  well  as  from  adversaries ;  to  this  I  must  devote  a  few  words  oi 
explanation  unless  I  wish  to  incur  the  charge  of  neglecting  it. 
The  complaint  is,  that  in  treating  each  question  I  have  set  forth  the 
various  competing  systems  without  expressing  my  own  opinions  in 
a  sufficiently  decided  manner ;  I  am,  therefore,  charged  with  leaving 
students  to  wander  in  a  state  of  unpleasant  uncertainty,  and  with 
consequently  failing  to  discharge  in  full  measure  the  duties  of  a  pro- 
fessor who  is  entrusted  with  the  care  of  the  minds  of  the  young. 

My  reply  is,  that  this  book  is  not  intended  for  scholars  in  pri- 
mary schools  or  for  use  in  secondary  education.  Nor  is  it  addressed 
exclusively  to  students  of  the  universities ;  its  object  is  also  to 
reach  practical  men  who  wish  to  form  for  themselves  an  opinion 
on  economic  and  social  questions ;    I  repeat,  men  who  wish  to 

V 


VI  AUTHOR  S    PREFACE   TO   THE   THIRD    EDITION. 

form  an  opinion  "  for  themselves,"  and  are  not  content  with  re- 
ceiving one  ready-made  from  the  teacher's  Hps.  My  method  may 
sometimes  leave  the  reader  in  a  state  of  hesitation  and  suspended, 
as  it  were,  in  a  species  of  mental  balancing  which  is  wont  to  lull 
to  sleep  minds  of  a  sluggish  nature ;  but  I  am  confident  that  it 
will  be  profitable  to  those  who  are  eager  for  the  discovery  of  truth 
and  do  not  wish  to  have  opinions  forced  upon  them.  Further, 
I  have  not  shrunk  from  pronouncing  an  outspoken  judgment 
on  all  questions  in  which  the  truth  seems  to  be  beyond  contro- 
versy ;  in  all  cases  in  which  doubt  is  possible,  —  a  class  of  ques- 
tions which  unfortunately  is  far  more  extensive,  —  I  have  striven 
to  maintain  an  equal  balance,  but,  nevertheless,  have  not  neglected 
to  throw  in  that  grain  of  sand  which,  for  the  keen  observer's  eye, 
is  enough  to  turn  the  scale. 

Perhaps  I  may  also  be  allowed  to  remark,  that  the  excess  of 
impartiality  for  which  I  am  taken  to  task  has  not  been  the  char- 
acteristic feature  of  treatises  on  pohtical  economy  which  have  been 
hitherto  published  in  France.  For  several  generations  these  books 
had  been  in  the  habit  of  presenting  political  economy  in  only  one 
light,  —  the  point  of  view  of  the  "  Liberal "  school.  There  is,  then, 
no  reason  to  murmur  if  later  treatises  should  break  with  a  tradi- 
tion which  was  beginning  to  assume  the  shape  of  a  law,  should 
restore  their  rightful  place  to  doctrines  which  have  heretofore 
been  proscribed,  and  should  give  their  due  share  of  justice  even 
to  notions  which  do  not  command  our  assent ;  for  thus  can  be 
applied  Shakespeare's  admirable  maxim,  — 

"  There  is  some  soul  of  goodness  in  things  evil, 
Would  men  obscrvingly  distil  it  out." 

—  Henry  V,  act  iv,  scene  i. 

CHARLES  GIDE. 


AMERICAN    INTRODUCTION. 


Science  is  international ;  it  suffers  when  the  natural  relation 
between  different  countries  is  interrupted,  and  gains  when  the 
connection  is  resumed.  The  publication  in  America  of  a  treatise 
on  Economics  written  in  France,  and  translated  in  England,  means 
the  re-establishment  of  an  intellectual  commerce  that  has  been 
partly  under  an  embargo.  The  orthodoxy  of  many  French  econ- 
omists, and  the  impulse  to  enUst  under  new  school  or  historical 
standards,  which  lately  showed  itself  in  America,  had  the  effect  of 
isolating  these  two  countries  from  each  other ;  while  between  the 
American  school  and  the  English  school  of  a  few  years  ago,  a 
similar  though  less  complete  separation  had  taken  place.  Between 
England  and  America  an  active  interchange  of  thought  has  since 
been  established. 

In  addition  to  the  benefit  to  be  derived  from  a  closer  scientific 
relation  to  France,  there  are  specific  gains  to  be  expected  from 
the  use  of  Professor  Gide's  treatise  by  American  students.  Its 
progressive  spirit  will  make  it  everywhere  welcome,  and  its  appreci- 
ative attitude  toward  the  older  schools  of  thought  will,  at  the  same 
time,  make  it  everywhere  useful.  It  carefully  retains  the  best  fruits 
of  early  work  ;  the  "  new  departure  "  that  it  represents  is  one  that 
does  not  break  with  the  past.  Its  conspicuous  quality  is  a  wisdom 
that  is  not  often  combined  with  so  much  of  brilliancy. 

Mr.  Jacobsen  has  been  very  successful  in  preserving  in  his  trans- 
lation the  literary  quality  of  the  original  work. 

J.  B.  CLARK. 

Northampton,  Mass., 
March  20,  1891. 


TABLE   OF   CONTENTS. 


GENERAL  NOTIONS. 

PAGB 

I.  The  object  of  political  economy ,,...'•••  ^ 

II.   On  method  in  political  economy 4 

III.  Whether  there  are  natural  laws  in  political  economy 9 

IV.  The  four  economic  schools I5 


Book  I. 

WEALTH  AND  VALUE. 


Chapter  I. — Wealth. 

I.  The  desire  for  wealth 31 

II.  The  wants  of  man 34 

III.   The  definition  of  wealth 38 

Chapter  II. — Value. 

I.   What  is  value  ? 44 

II.   What  is  the  cause  of  value  ? 47 

III.  Critical  examination  of  the  various  theories  of  value 54 

IV.  Variations  in  value 60 

V.  The  effects  produced  on  value  by  competition 64 

VI.  Whether  competition  is  cheapness 68 

Chapter  III.  —  Price. 

I.   How  value  is  measured  by  exchange 7^ 

II.   On  the  choice  of  a  common  measure  of  values 74 

III.  What  is  price? 82 

IV.  Whether  the  measure  of  value  be  not  an  insoluble  problem 84 

V.   Whether  money  should  be  reckoned  as  wealth 88 


x  table  of  contents. 

Book  IL 

production. 

Part  I.  —  The  Conditions  of  Individual  Production. 

THE   factors  of  PRODUCTION. 

Chapter  I.  —  Nature.  page 

I.   The  environment 96 

IL    The  ground 99 

III.  The  raw  material loi 

IV.  Motive  forces 103 

Chapter  II.  —  Labor. 

I.   On  the  part  played  in  production  b^  labor 108 

II.    How  labor  produces iii 

III.  What  kinds  of  labor  should  be  called  productive? 113 

IV.  On  pain  as  a  factor  of  labor 118 

V.   On  time  as  a  factor  of  labor 121 

Chapter  III.  —  Capital. 

I.   On  the  part  played  in  production  by  capital 1 25 

II.   The  meaning  of  the  productivity  of  capital 127 

III.  The  distinction  between  wealth  which  is  capital  and  wealth  which 

is  not 1 30 

IV.  The  durability  of  fixed  and  of  circulating  capital 135 

V.   How  capital  is  formed 138 

Part  IL  —  The  Social  Conditions  of  Production, 
the  social  organism. 
Chapter  I.  —  Association. 

I.   The  various  forms  of  association 145 

II.   The  advantages  and  disadvantages  of  large  production 150 

III.   Whether  large  production  should  be  extended  to  agriculture 154 

Chaiter  II.  —  Division  of  Labor. 

I.   The  different  forms  of  division  of  labor 158 

IL   The  advantages  and  the  disadvantages  of  division  of  labor 161 

III.    Liberty  of  ]a!)or 166 


TABLE    OF    CONTENTS,  XI 

Chapter  III.  —  Exchange.  page 

I.   On  the  part  played  in  production  by  exchange 169 

II.   The  advantages  of  exchange 172 

III.  On  the  means  of  facilitating  exchange 174. 

IV.  On  the  part  played  in  production  by  traders 174 

V.   The  disadvantages  of  the  multiplication  of  traders 176 

VI.   Means  of  transport 1 79 

VII.  The  breaking-up  of  barter  into  sale  and  purchase 182 

Chapter  IV.  —  Metallic  Money. 

I.   \NTiy  the  precious  metals  have  been  chosen  as  the  instrument  of 

exchange 186 

II.  The  invention  of  coined  money 188 

III.  The  conditions  to  be  fulfilled  by  all  good  money 190 

IV.  Gresham's  law 194 


the  question  of  monometallism  and  bimetallism. 

I.  The  necessity  of  taking  several  metals,  and  the  resulting  difficulties  198 

II.    How  it  is  that  bimetallist  countries  really  have  but  one  money. . .  202 

III.  Whether  it  is  advisable  to  adopt  the  monometallist  system 207 

IV.  Whether  the  respective  value  of  the  two  metals  could  not  be  fixed 

by  an  international  understanding 211 

Chapter  V.  —  Paper  Money. 

I.   Whether  metallic  money  can  be  replaced  by  paper  money 214 

II.   Whether  the  creation  of  paper  money  is  equivalent  to  a  creation 

of  wealth 219 

III.  The  dangers  resulting  from  the  use  of  paper  money  and  the  means 

of  preventing  them 224 

IV.  How  even  paper  money  may  be  dispensed  with 228 

V.    How  the  improvements  in  exchange  bring  us  back  to  barter 233 

VI.   The  decadence  of  the  precious  metals 234 

Chapter  VI.  —  International  Trade. 

I.    Why  exaggerated  importance  is  attached  to  foreign  trade 236 

II.    Why  international  trade  always  tends  to  take  the  shape  of  barter  237 

III.  What  is  meant  by  the  balance  of  trade 241 

IV.  Wherein  lie  the  advantages  of  international  trade 246 


Xll  TABLE    OF    CONTENTS. 

PAGB 

V.   Why  the  advantages  of  international  trade  should  be  measured 

neither  by  the  excess  in  imports  nor  by  the  excess  in  exports. .  248 
VI.    How  it  happens  that  international  trade  necessarily  harms  certain 

interests 250 

THE  QUESTION   OF   FREE  TRADE  AND   PROTECTION. 

I.   Why  the  question  of  free  trade  is  a  question 252 

II.  The  protectionist  system 256 

III.  Whether  the  dangers  feared  by  the  protectionist  theory  are  real. .  260 

IV.  On  the  disadvantages  of  protective  duties 264 

V.   Why  the  bounty  system  is  preferable 269 

VI.   On  some  moderate  forms  of  protection 270 

Chapter  VII.  —  Credit. 

I.   Credit  operations 272 

II.   Credit  papers 275 

III.  Whether  credit  can  create  capital 277 

IV.  Banks 280 

V.   Deposits 281 

VI.   Discount 283 

VII.   On  the  issuing  of  bank  notes 286 

VIII.  The  differences  between  the  bank  note  and  paper  money 290 

IX.   The  rate  of  exchange 292 

X.  The  raising  of  the  rate  af  discount 299 


C^( 


XI.   Some  special  forms  of  c^dit 303 

the  question   of   MONOPOLY  OR   OF  LIBERTY   OF  BANKING. 

T.   On  monopoly  or  competition  in  the  issuing  of  notes 3^9 

II.   As  to  liberty  or  regulation  in  the  issuing  of  notes 313 


Part  III.  —  The  Equilibrium  between  Production  and 
Consumption. 

Chapter  I.  —  Insufficiency  in  Production. 

I.   The  increase  of  population;   the  laws  of  Malthus 320 

II.   On  the  limitation  of  production  in  agriculture,  and  the  law  of 

decreasing  returns 323 

III.  On  the  limitation  of  production  in  otlier  industries 328 

IV.  How  limitation  of  production  affects  prices 330 


TABLE    OF    CONTENTS.  xiii 

FACE 

Chapter  II.  —  Excess  in  Production. 

I.   How  to  maintain  the  equilibrium  between  production  and  con- 
sumption   224^ 

II.   Crises ^^6 

III.   Is  there  reason  to  fear  too  much  production? 341 

Chapter  III.  —  Progress  in  Production. 

I.   Current  illusions  as  to  economic  progress 345 

II.   The  disadvantages  necessarily  involved  in  all  progress  in  pro- 
duction    348 

III.  The  question  of  machinery 351 

IV.  The  future  of  production ,,..., 356 


Book  HI. 

CONSUMPTION. 
How  Wealth  can  be  Employed. 

Chapter  I.  —  Expenditure. 

I.   What  should  be  our  conception  of  expenditure? 361 

II.   How  it  happens  that  expenditure  regulates  but  does  not   feed 

production 364 

III.  The  real  aims  of  expenditure 366 

IV.  Luxury 369 

V.   The  expenditure  of  foreigners 373 

VI.  The  means  of  reducing  expenditure 376 

Chapter  II.  —  Saving. 

I.   What  should  be  our  conception  of  saving? 379 

II.   The  conditions  necessary  for  saving 382 

III.    Institutions  for  the  facilitation  of  saving 386 

Chapter  III.  —  Investing. 

I.   What  should  be  our  conception  of  investing? 390 

II.   The  conditions  necessary  for  investing 395 


XIV  TABLE   OF    CONTENTS. 

Book  IV. 

DISTRIBUTION. 

Part  I.  —  The  Various  Principles  of  Distribution. 

Chapter  I.  —  The  Social  Problem.  page 

I.    Is  there  a  social  question  ? 398 

II.   The  inequahty  of  wealth 401 

III.   Why  the  problem  of  distribution  is  so  hard  to  solve 406 

Chapter  II.  —  The  Socialist  Solution. 

I.   Communism 410 

II.   Collectivism 414 

III.  The  different  formulae  for  the  division  of  wealth 418 

IV.  Why  there  is  no  solution 428 

Chapter  III.  —  The  Rights  of  Property. 

I.   The  origin  of  the  rights  of  property 430 

II.   What  are  the  attributes  of  the  rights  of  property? 431 

III.  Over  what  things  should  the  right  of  property  extend? 438 

IV.  The  historical  evolution  of  landed  property 445 

V.   The  legitimacy  of  landed  property 451 

VI.   The  law  of  ground  rent 455 

VII.   The  nationalization  of  the  land 461 

VIII.   The  organization  of  landed  property 464 

Part  II.  —  The  Various  Classes  of  Sharers. 

Chapter  I. — The  Autonomous  Producer. 

I,    Why  this  condition  is  the  most  favorable  for  a  fair  distribution  of 

wealth 473 

Chapter  II.  — The  Master. 

I.   The  part  played  by  the  master,  and  the  legitimacy  of  profits 477 

II.    The  laws  which  regulate  profits 4S2 

III.   Whether  the  rate  of  profits  is  in  inverse  ratio  to  the  rate  of  wages  486 

Chaiter  III. — The  Wacks-karner. 

I.   The  contract  of  wages 489 

II.   The  laws  which  regulate  the  rate  of  wages 492 


TABLE    OF    CONTENTS.  XV 

PAGE 

III.  The  rise  in  wages 503 

IV.  Whether  there  are  any  means  of  improving  the  condition  of  the 

wages-earners 506 

V.   Strikes 509 

VI.   State  interference ' 512 

VII.   Co-operation 519 

Chapter  IV. — The  Man  who  Lives  on  his  Income. 

I.   The  right  to  be  idle 526 

II.   The  rent  of  land 529 

III.  House-rent , 532 

IV.  Interest 535 

V.  Does  the  rate  of  interest  tend  to  fall? 539 

Chapter  V. — The  Indigent. 

I.   The  right  to  relief 543 

II.   The  organization  of  public  relief. 547 

III.   Is  pauperism  on  the  increase? 552 

Appendix.  —  The  Public  Finances  of  France. 

I.   Public  expenditure 554 

II.   The  public  revenue 559 

III.  The  public  debt 570 


PRINCIPLES   OF   POLITICAL  ECONOMY. 


o>*:o 


GENERAL   NOTIONS. 

I.     THE   OBJECT   OF   POLITICAL   ECONOMY. 

It  may  appear  strange,  at  the  beginning  of  a  treatise  on  political 
economy  which  is  perhaps  the  hundredth  which  has  been  written 
on  the  subject,  to  declare  that  a  precise  definition  of  political 
economy  has  still  to  be  found. 

Such,  however,  is  the  truth  ;  and  after  all,  there  is  nothing  very 
surprising  about  it.  No  science  can  be  clearly  defined  until  it  has 
been  finished  and  till  the  neighboring  sciences  are  so  also.  Now, 
such  is  not  the  case  with  the  science  which  is  occupying  our 
attention  ;  on  the  contrary,  like  the  other  social  sciences,  it  is  a 
science  in  process  of  formation.  Just  as  in  a  still  unexplored 
land,  the  traveller  cannot  mark  out  on  the  map  the  exact  frontiers 
of  each  district,  but  must  confine  himself  to  indicating  more  or 
less  approximately  the  great  dividing  lines  which  he  perceives 
or  guesses  at,  so  here,  too,  we  must  be  contented  with  pointing 
out  as  accurately  as  we  can  the  domain  of  political  economy, 
without  venturing  to  mark  it  off  very  clearly  from  the  territory  of 
the  other  social  sciences. 

Without,  then,  seeking  at  present  a  precision  that  would  be 
useless,  we  may  say,  in  harmony  with  most  writers,  that  political 
economy  is  the  science  of  wealth.  Although  the  word  "  wealth  " 
of  itself  greatly  needs  definition,  yet  it  sharply  suggests  to  the 
mind  the  essential  facts  with  which  our  science  deals,  and  there- 


2  PRINCIPLES    OF    POLITICAL    ECONOMY. 

fore  frees  us  from  a  recourse  to  long  circumlocutions  ;  still  we  must 
not  be  led  astray  by  the  circumstance  that  political  economy  deals 
with  wealth,  that  is  to  say,  with  things,  res,  nor  be  tempted  thereby 
to  class  it  among  the  natural  sciences  which  study  bodies.  Wealth, 
as  we  snail  see,  is  created  by  the  needs  of  men  living  in  society, 
and  consequently  the  study  of  wealth  is  nothing  but  the  study  of 
"  man  "  under  one  of  his  most  characteristic  aspects. 

Three  questions  have  always  occupied  the  thoughts  of  men : 
"  How  can  wealth  be  produced  ?  "  "  What  use  should  be  made  ot 
it?"  "  In  what  manner  should  it  be  divided?"  The  several  an- 
swers to  each  of  these  questions  constitute  one  of  the  great  divisions 
of  political  economy ;  viz.,  production,  consumption,  and  distribu- 
tion. In  works  on  political  economy,  almost  without  exception,  a 
fourth  division  is  added,  viz.,  circulation  ;  but  we  must  confess  that 
we  have  never  been  able  to  understand  what  the  term  answered  and 
referred  to.  For  the  circulation  of  wealth,  i.e.  the  transferring 
of  commodities  from  hand  to  hand,  is,  as  will  be  seen,  nothing 
but  a  consequence  and  a  form  of  division  of  labor.  It  is  there- 
fore irrational  to  detach  this  section  from  the  department  of  pro- 
duction in  order  to  make  it  into  a  distinct  branch.  The  fact  that 
wealth  may  be  transferred  from  hand  to  hand  is  a  circumstance 
which  is  valueless  in  itself,  and  its  only  worth  lies  in  the  measure 
in  which  it  contributes  to  social  production. 

It  is  clear  that  the  three  questions  which  constitute  the  pith 
of  political  economy  are  essentially  practical  ones,  and  it  seems  to 
follow  that  the  science  whose  object  it  is  to  supply  an  answer 
to  these  qyestions  should  itself  be  of  a  practical  nature ;  in  other 
words,  be  an  art  rather  than  a  science.  Indeed,  it  was  under  this 
aspect  as  an  art,  or  say  a  practical  study  pursuing  a  definite  aim, 
namely,  national  prosperity,  that  political  economy  was  always 
regarded  by  the  ancients.  This,  too,  is  shown  by  the  etymology 
of  the  word  (oT/cos  =  the  house,  i/o/xos  =  government,  ttoAis  =  the 
city),  and  Adam  Smith,  the  father  of  the  science,  adhered  to  this 
Jcfinilion. 

Uut  the   human   mind,   which   is  always  curious  to  learn  the 


GENERAL    NOTIONS.  3 

reason  of  things,  has  gone  on  to  ask  a  further  question  :  "  "What  is 
Wealth?"  But  this  differs  from  the  three  earlier  questions  by 
possessing  a  purely  speculative  character ;  its  object  is  to  deter- 
mine  the  causes  which  lender  wealth  desirable,  to  discover  the 
necessary  relations  between  different  kinds  of  wealth ;  in  other 
words,  to  formulate  the  laws  of  value  and  of  price.  To  the 
answenng  of  this  branch  of  questions  we  purpose  to  devote  a 
fourth  division ;  but  to  comply  with  the  necessities  of  logic  this 
must  be  our  first  part,  and  should  be  regarded  as  the  purely 
theoretical  side  of  political  economy. 

In  most  works  on  political  economy,  value  is  merely  dealt  with 
as  a  portion  of  exchange,  but  that  presents  it  in  a  far  too  narrow 
light.  The  notion  of  value  is  really  the  basis  of  all  political 
economy ;  and  not  only  exchange,  but  distribution,  consumption, 
and  production  likewise  become  united,  from  a  strictly  scientific 
as  well  as  from  a  practical  point  of  view,  when  questions  of  value 
are  discussed.  It  is  logical,  then,  to  give  value  a  branch  to  itself, 
unless,  indeed,  we  are  willing  to  scatter  it  through  ail  the  other 
divisionSo  In  fine,  works  on  pure  political  economy  are  in  reality 
nothing  but  treatises  on  value. 

Political  economy  is  not  the  only  science  which  treats  of  the 
relations  between  men  and  things  or  of  the  relations  of  men 
inter  se ;  Law  and  Morals  share  m  this  study.  These  three 
great  social  sciences  have  the  same  object,  at  least  for  a  part 
of  their  work ;  though,  no  doubt,  they  view  it  under  three  differ- 
ent aspects.  The  economist  is  concerned  merely  with  the  wants 
of  men,  the  lawyer  with  his  rights,  the  moralist  with  his  duties. 
But  on  questions  of  succession,  property,  credit,  on  the  contract  of 
loans  and  of  wages,  the  lawyer  and  the  economist  are  compelled 
to  join  hands,  just  as  the  economist  and  the  moralist  have  to  meet 
on  the  questions  of  luxury  or  poverty  and  many  others.  This  is  a 
happy  meeting  and  is  of  great  benefit  to  all  three  sciences.  Our 
virtual  separation  of  them  follows  less  from  the  necessities  of  logic 
than  from  that  weakness  of  human  understanding  which  debars 
us  from  comprehending  so  vast  a  domain  at  one  and  the  same 


4  PRINCIPLES    OF    POLITICAL   ECONOMY. 

glance.     Still  it  is  to  be  hoped  that  there  may  be  a  daily  increase 
in  their  blending  and  joint  study. 

Years  ago  Auguste  Comte  laid  down  "  that  every  study  isolated 
from  its  various  social  elements  was,  from  the  very  nature  of  the 
science,  compelled  to  be  essentially  sterile,  after  the  example  of 
political  ecotio  my''  For  he  conceived  the  idea,  which  constitutes 
his  chief  title  to  fame,  of  the  regulation  of  ail  social  phenomena 
by  a  separate  science  which  he  called  sociology.  All  workers  at 
sociology,  whether  they  be  of  the  school  of  Comte  or  of  the  school 
of  Herbert  Spencer,  apply  their  main  efforts  to  the  formation 
of  a  huge  synthesis  of  all  the  social  sciences ;  Dut  the  field  is  so 
vast  that  it  is  easy  to  miss  the  right  road„ 

II.     ON   METHOD   IN   POLITICAL   ECONOMY. 

In  scientific  language  the  term  "  method  "  is  used  to  mean  the 
road  that  must  be  followed  for  the  discovery  of  truth.  Now  there 
are  several  roads,  and  the  question  as  to  which  road  should  be 
chosen  has  in  recent  years  aroused  a  great  controversy. 

The  classical  school  of  economics,  of  which  Ricardo  is  the  most 
illustrious  representative,  used  to  employ  the  deductive  method, — 
a  method  which  starts  from  certain  general  prmciples  that  are 
regarded  as  indisputable,  and  proceeds  thence  by  way  of  logical 
consequence  to  deduce  an  indefinite  series  of  propositions. 
Geometry  (or  even  theology)  may  be  taken  as  the  type  of  the 
sciences  that  employ  the  deductive  method.  Law  students  will 
readily  recognize  that  Law  itself,  particularly  Roman  Law,  employs 
the  deductive  method  ;  for  the  jurisconsult,  starting  from  a  few 
principles  laid  down  by  the  Twelve  Tables,  or  found  in  \kit  jus 
gentium,  proceeded  to  construct  that  huge  monument  of  learning 
that  we  call  the  Pandects.  In  economic  science  the  deductive 
school  started  from  the  principle  (named  hedonistic)  "  that  man 
always  desires  to  obtain  the  maximum  of  satisfaction  with  the 
minimum  of  pain,"  and  thence  deduced  a  series  of  propositions 
which  still  constitute  the  framework  of  economic  science. 


GENERAL    NOTIONS.  J 

The  new  school  rejects  this  mode  of  reasoning ;  it  asserts  that 
in  social  science,  and  in  the  physical  or  natural  sciences  likewise, 
the  inductive  method  is  the  only  one  to  employ :  this  method 
starts  from  the  obser\'ation  of  certain  particular  facts  in  order  to 
rise  to  the  height  of  general  propositions ;  for  example,  from  the 
fact  that  all  bodies  fall,  to  the  law  of  gravity.  In  economics  this 
method  will  be  shown  in  the  individual  and  accumulated  obser- 
vation of  all  social  facts  as  they  are  revealed  to  us,  in  their  present 
state  by  means  of  statistics  or  by  information  supplied  by  travellers, 
in  their  past  state  by  history.  Thus  we  shall  be  able  to  slowly  raise 
the  edifice  of  economic  science,  which  will  then  be  the  true  science, 
not  like  that  artificial  science  (so  says  the  new  school)  which  the 
deductive  school  constructed  in  cut  and  dried  fashion. 

Both  of  these  methods  are  too  absolute ;  but  truth  is  never 
reached  by  so  perfectly  straight  a  road.  The  real  method  of 
political  economy  proceeds  by  three  stages  : 

First.  By  the  observation  of  facts  without  any  preconceived 
notion,  even  those  which  at  first  sight  appear  to  be  the  most  trivial. 

Second.  By  the  imagination  of  a  general  explanation  which  will 
enable  us  to  establish  mutual  relations  between  certain  groups  of 
facts  ;  i.e.  by  the  forming  of  an  hypothesis. 

Third.  By  the  verification  of  the  validity  of  this  hypothesis,  by 
seeking,  by  the  aid  of  experiment  if  possible,  at  any  rate  by 
specially  directed  observations,  to  discover  whether  it  exactly  cor- 
responds with  the  facts.  ...  Of  course  it  is  not  necessary  for 
the  same  men  of  science  to  make  observations,  form  hypotheses, 
and  verify  them  ;  for  the  gifts  of  observation  and  of  imagination 
are  somewhat  rarely  combined  in  the  same  person. 

The  above  has  been  the  procedure  adopted  in  all  sciences.  All 
those  great  laws  which  constitute  the  bases  of  modern  sciences, 
beginning  with  Newton's  Law  of  Gravity,  are  only  verified 
hypotheses ;  and  we  must  add  that  the  great  theories  which  are 
the  groundwork  of  scientific  research,  e.g.  the  existence  of  ether  in 
physics,  or  the  theory  of  evolution  in  natural  science,  are  merely 
hypotheses  which  require  verification.     Proof  of  this  may  be  found 


6  PRINCIPLES    OF    POLITICAL    ECONOMY. 

in  Claude  Bernard's  Introduction  a  V Etude  de  la  Medecine  ExperU 
vientale  and  in  M.  Naville's  La  Logique  de  V Hypothese. 

As  Stanley  Jevons  has  observed  in  his  Principles  of  Science,  the 
method  employed  for  obtaining  the  discovery  of  truth  in  the 
sciences  is  similar  to  that  unconsciously  made  use  of  by  those  who 
try  to  find  the  meaning  of  those  rebuses  or  ciphers  to  be  met  with 
on  the  back  page  of  some  illustrated  papers.  In  order  to  guess 
what  the  meaning  of  this  enigma  may  be,  we  imagine  some  mean- 
ing or  other.  Then  we  observe  whether  this  really  agrees  with  the 
figures  or  images  before  us ;  if  it  does  not,  it  is  an  hypothesis  to 
be  rejected.  We  then  conceive  another  one,  and  so  forth,  until 
we  obtain  a  more  successful  result,  or  lose  courage  altogether. 
We  shall  find  nothing  in  facts  unless  we  have  previously  in  our 
minds  an  image  or  a  forecast  of  the  truth. 

The  new  school,  then,  is  wholly  in  the  right  when  it  blames  the 
classical  school  for  its  dogmatic  attitude  and  for  its  tendency  to 
believe  that  the  principles,  at  which  it  has  arrived  by  reasoning, 
are  the  exact  expression  of  what  is  and  of  what  ought  to  be.  But 
this  school,  in  its  turn,  commits  no  less  serious  an  error  in  believ- 
ing that  the  attentive  observation  of  facts  is  of  itself  sufficient  to 
establish  the  science  of  economics,  and  that  we  may  therefore  for 
the  future  dispense  with  any  resort  to  abstraction,  hypothesis,  and 
the  "  let  us  suppose  "  so  dear  to  the  school  of  Ricardo  and  so 
obnoxious  to  the  school  now  under  mention. 

The  facts  presented  to  us  by  nature  are  too  numerous,  too 
complex,  too  interlaced ;  and  in  economics  especially,  they  form 
too  inextricable  a  labyrinth  for  us  ever  to  be  able  to  discover  our 
whereabouts,  unless  reason  or  imagination  comes  to  our  aid  and 
throws  light  upon  the  darkness  and  forms  order  out  of  the  chaos. 
It  is  true  enough  that  the  generalizations  of  the  classical  school 
to  whicli,  too  ambitiously,  perhaps,  has  been  given  the  name  of 
"laws"  (for  instance,  those  associated  with  Ricardo  and  with  Mal- 
thus),  are  for  the  most  part  only  hypotheses  to  be  verified  or  to 
be  rejected.  But,  such  as  they  are,  they  have  rendered  eminent 
service  to  the  science  of  economics,  and  it  would  be  ungrateful 


GENERAL    NOTIONS.  7 

to  disown  them,  even  though  they  may  come  to  be  regarded  not 
as  the  framework  of  poUtical  economy,  but  only  as  the  scaffolding 
used  during  the  construction  of  buildings,  and  destined  to  be 
taken  down  as  soon  as  the  work  is  completed. 

Latterly,  however,  a  new  deductive  school  has  arisen,  which,  in 
spite  of  adhering  faithfully  to  the  reasoning  method,  and  even 
pushing  it  to  the  extreme,  as  is  shown  by  its  preferring  to  employ 
mathematical  language,  has  been  wary  enough  not  to  be  ensnared 
by  its  own  speculations,  as  was  the  case  with  the  former  deductive 
school.  This  newer  deductive  school  presents  its  abstractions 
purely  as  what  they  are ;  that  is  to  say,  as  hypotheses  intended  to 
illuminate  facts  and  guide  observation. 

In  his  Eleme7its  d'' Economie  politique  pure,  M.  Walras  of  Lau- 
sanne writes  :  "  Pure  political  economy  is  essentially  the  theory  of 
the  determination  of  prices  under  a  hypothetical  regulation  of  ab- 
solutely free  competition."  To  this  may  be  added  a  dictum  of 
Signor  Pantaleoni  in  his  Principii  di  Economia  pura  :  "  Whether 
the  hedonistic  and  psychological  hypothesis  (that  of  the  maximum 
of  pleasure  with  the  minimum  of  effort),  whence  all  economic 
truths  are  deduced,  coincides  or  fails  to  coincide  with  the  motives 
which  actually  determine  men's  actions,  is  a  question  which  in 
nowise  detracts  from  the  accuracy  of  truths  deduced  therefrom." 

In  point  of  method  there  is  one  great  difference  between  the 
economic  and  the  natural  sciences ;  in  economics  it  is  very  diffi- 
cult and  often  impossible  to  employ  experiment,  and  therefore 
hypotheses  may  remain  in  suspense  for  an  indefinitely  long  period, 
for  want  of  any  suitable  means  of  verification.  The  chemist,  the 
physicist,  and  even  the  biologist,  though  the  last  experiences 
greater  difficulties,  can  always  place  the  fact  which  they  wish  to 
study  under  certain  artificially  determined  conditions  which  they 
can  vary  at  will. 

For  instance,  in  order  to  study  the  respiration  of  an  animal, 
they  can  place  it  under  the  bell-jar  of  a  pneumatic  machine,  and 
alter  the  pressure  of  the  air  according  to  their  requirements.  This 
power  is  never  possible  to  the  economist,  even  though  he  be 


8  PRINCIPLES    OF    POLITICAL   ECONOMY. 

joined  by  a  lawgiver  or  an  omnipotent  despot.  In  social  matters 
we  are  obliged  to  study  facts  as  they  are  presented  to  us,  without 
being  able  to  isolate  them  from  the  web  of  connected  facts'  in 
which  they  are  implicated.  We  cannot  put  a  country  under  a 
bell-jar;  and  even  if  we  could,  that  would  not  be  enough  to 
enable  us  to  draw  any  certain  conclusions. 

Let  us  suppose  that  in  order  to  study  the  effects  produced  by 
free  trade,  we  could  take  two  countries,  and  subject  one  to  an 
absolute  regime  of  free  trade,  the  other  to  a  protectionist  system  ; 
and  find,  at  the  end  of  ten  years,  that  the  former  had  greatly 
increased  in  wealth,  whereas  the  latter  had  become  ruined.  No 
doubt  this  would  be  valuable  information  for  us  to  gain ;  but  still, 
even  under  the  extraordinarily  favorable,  and  moreover,  altogether 
imaginary,  circumstances  that  I  have  supposed,  the  experiment 
would  not  be  a  decisive  one.  For  the  various  destinies  of  different 
countries  can  be  explained  by  far  other  causes  than  differences  in 
their  commercial  systems ;  to  wit :  differences  in  environment, 
in  race,  in  legislation,  in  individual  energy. 

Take  the  two  Australian  colonies  of  New  South  Wales  and  of 
Victoria ;  though  both  of  them  are  of  the  same  race  and  in  the 
same  environment,  the  first  is  free-trading,  the  second  is  protec- 
tionist. Although  this  experiment  has  already  lasted  for  a  long 
time,  are  we  to  think  that  the  question  of  free  trade  has  yet 
been  solved?     By  no  means  !     Adhuc  sub  judice  lis  est. 

Instead,  therefore,  of  being  able  to  make  direct  social  experi- 
ments, we  are  obliged  to  wait  for  what  chance  may  supply  us 
with  in  certain  particular  circumstances,  such  as  the  application 
of  a  new  method  of  legislation,  the  foundation  of  a  socialist  com- 
munity, a  pathological  crisis  in  an  existing  society ;  and  even  then 
this  indirect  mode  of  experimentation  would  but  very  rarely  lead 
us  to  any  definite  conclusions. 

We  must  not  then  be  astonished,  as  people  too  often  are,  if  the 
science  of  economics  takes  far  longer  to  construct  than  was  the 
case  with  the  physical  or  natural  sciences.  Nay  !  the  reverse 
rather  would  have   caused   surprise ;    for  on  the  one  hand  the 


GENERAL    NOTIONS.  9 

observation  of  facts  is  in  this  study  more  difficult  than  it  is  else- 
where ;  and,  on  the  other  hand,  the  most  powerful  means  for 
reading  between  the  lines  of  facts  (the  auxiliary  that  has  enabled 
the  other  sciences  to  make  such  marvellous  and  so  rapid  prog- 
ress"), I  mean  experiment,  now  deserts  us.  A  further  reason 
this,  for  not  absolutely  rejecting  the  employment  of  the  abstract 
method. 

In  truth,  the  observation  of  economic  and  social  facts  is  a  task 
which  is  infinitely  above  all  individual  effort.  It  could  only  be  the 
collective  work  of  thousands  of  men  putting  their  observations 
together,  or  of  governments  themselves,  using  for  this  purpose  the 
powerful  means  of  investigation  which  they  have  at  their  disposal. 
If  there  is  one  simple  and  elementary  fact  among  all  the  facts  which 
have  any  connection  with  the  social  sciences,  it  is  surely  that  of 
the  number  of  persons  composing  a  society.  Yet  it  is  clear  that 
an  isolated  observer  is  absolutely  powerless  to  determine  this 
matter.  Governments  alone  can  undertake  this  task,  and  even 
then  it  is  only  quite  recently  that  official  returns  have  attained  a 
moderate  degree  of  accuracy. 

To  take  another  example.  In  1879  the  French  National  Soci- 
ety of  Agriculture  wished  to  make  an  inquiry  into  the  question 
whether  the  division  of  property  had  increased  or  diminished. 
Can  a  simpler  question  be  imagined  ?  Yet  the  result  of  this  inquiry 
(as  reported  by  M.  Leroy-Beaulieu  in  his  book  on  La  Repartitioji 
des  richesses)  was  that  out  of  88  correspondents,  38  replied  that 
the  division  of  property  had  increased,  4  that  it  had  diminished, 
21  that  it  had  remained  unchanged,  and  25  made  no  reply  at  all, 
probably  because  they  knew  nothing  at  all  about  it. 


III.    WHETHER  THERE    ARE    NATURAL  LAWS    IN 
POLITICAL    ECONOMY. 

When  we  grant  to  any  branch  of  human  knowledge  the  name  of 
science,  our  object  is  not  the  simple  bestowal  on  it  of  an  honorary 
title ;  the  assertion  we  make  is,  that  the  facts  studied  by  thi? 


lO  PRINCIPLES    OF    POLITICAL    ECONOMY. 

*'  science  "  are  naturally  connected  with  one  another  in  a  regular 
order ;  in  other  words,  that  they  are  subject  to  /azas. 

In  some  domains  the  order  of  phenomena  is  so  obvious  that 
such  a  state  of  things  has  compelled  remark  even  from  the  minds 
v/hich  are  least  accustomed  to  scientific  speculations.  A  mere 
lifting  of  the  eyes  skywards  is  enough  to  establish  the  regularity  of 
the  nightly  progress  of  the  stars,  of  the  monthly  succession  of  the 
phases  of  the  moon,  of  the  yearly  journey  of  the  sun  through  the 
constellations.  In  the  most  remote  days  of  history,  shepherds 
watching  their  flocks,  sailors  steering  their  vessels,  had  already 
recognized  the  periodical  nature  of  these  movements,  and  herein 
were  laid  the  foundations  of  a  true  science,  the  oldest  of  all 
sciences,  —  astronomy. 

The  phenomena  which  are  manifested  in  the  constitution  of 
organized  bodies  and  dead  matter  are  not  as  simple,  and  the  order 
of  their  co-existence  or  succession  is  not  as  easy  to  comprehend. 
Many  centuries,  therefore,  had  to  elapse  before  the  human  mind, 
lost  in  the  labyrinth  of  things,  succeeded  in  laying  hold  of  the 
guiding  thread,  in  finding  at  length  order  and  law  in  these  facts 
themselves,  and  in  forming  out  of  them  the  sciences  of  physics, 
chemistry,  and  biology. 

Little  by  little  this  idea  of  a  constant  order  among  phenomena 
has  penetrated  into  all  domains,  even  into  those  which  at  first  sight 
seemed  destined  to  remain  forever  closed  to  it.  Even  those 
winds  and  waves,  which  poets  had  from  time  immemorial  made 
the  emblem  of  inconstancy  and  caprice,  have  in  their  turn  come 
to  recognize  the  empire  of  this  new  power.  At  least  the  great 
laws  have  been  established,  which  direct,  through  the  atmosphere 
or  across  the  oceans,  the  aerial  or  the  maritime  currents.  And 
meteorology,  or  the  physics  of  the  globe,  has  in  its  turn  established 
its  foundations.  Even  the  chances  of  wagers,  the  combinations 
of  dice  —  there  is  none,  even  of  these,  which  has  not  been  sub- 
jected to  the  calculation  of  probabiUties.  Hazard,  even,  hence- 
forward has  its  laws. 

The  day,  too,  was  to  come  when  this  grand  idea  of  a  natural 


GENERAL    NOTIONS.  II 

order  in  things,  after  having  step  by  step,  in  the  guise  of  a  con- 
quering power,  invaded  all  the  domains  of  human  knowledge, 
would  at  length  penetrate  the  region  of  social  facts.  To  the 
French  school  of  Physiocrats  falls  the  distinction  of  having  first 
recognized  and  proclaimed  the  existence  of  this  natural  govern- 
ment of  things ;  thence,  in  truth,  is  derived  the  name  of  their 
school,  from  two  Greek  words  which  njean  "  government  of 
nature."  For  this  reason  they  might  be  said  to  have  earned  the 
title  of  founders  of  economic  science,  had  they  not  been  too  greatly 
eclipsed  by  the  glory  of  Adam  Smith.  "  Human  society,"  said 
Quesnay,  "  is  a  necessary  fact,  governed  by  providential  laws. 
The  mission  of  government  is  not  to  make  laws,  but  to  declare 
and  proclaim  natural  laws,  and  make  their  observance  sure." 

In  the  present  century,  especially,  following  in  the  wake  of 
Auguste  Comte  and  Herbert  Spencer,  nearly  all  the  great  schools, 
positivist,  evolutionist,  historical,  even  socialistic,  have  teemed 
with  opinions  of  this  character;  all  of  them,  in  greater  or  less 
degree,  regard  human  societies  as  organisms,  which  are  bom  and 
developed  according  to  laws  precisely  analogous  with  those  bio- 
logical laws  which  govern  the  evolution  of  all  living  creatures. 
Still,  it  cannot  yet  be  said  that  this  notion  of  natural  laws  in 
economics  is  unanimously  accepted.  It  conflicts,  in  fact,  with  no 
small  difficulty ;  economic  facts  are  human  acts,  and  therefore 
voluntary  acts,  and  as  being  such  can  scarcely  be  conceived  as 
falling  under  the  rule  of  inevitable  laws.  However,  there  is  no 
insurmountable  contradiction  in  the  case. 

If  an  inevitable  contradiction  is  customarily  found  (or  supposed) 
to  exist  between  the  idea  of  liberty  and  the  idea  of  natural  law, 
that  arises  from  our  not  understanding  the  latter  expression  in  its 
real  sense  :  natural  law  is  represented  under  the  shape  of  civil 
law  or  penal  law ;  that  is  to  say,  as  a  power  holding  a  sword  in  its 
hand,  which  insists  on  being  obeyed,  willy  nilly.  Nothing  could 
be  more  false  than  this  conception.  Natural  law  is  only  the 
expression  of  a  constant  relation  which  has  been  established 
between  certain  phenomena,  and  in  economics  it  is  nothing  but 


12  PRINCIPLES    OF    POLITICAL    ECONOMY, 

the  expression  of  certain  constant  relations  in  the  acts  and  pro- 
ceedings of  men. 

Now  statistics  have  frequently  shown  the  really  surprising  regu- 
larity in  the  recurrence  of  the  most  important  acts  of  human  life, 
such  as  marriage ;  or  of  the  most  trivial,  such  as  posting  a  letter 
without  having  addressed  it.  In  economic  facts,  properly  so  called, 
this  regularity  is  no  less  remarkable.     The  current  of  a  river,  which 

13  usually  determined  by  natural  laws,  is  neither  more  constant  nor 
more  regular  than  the  movement  of  a  great  commercial  current, 
such  as  that  of  a  railway  line,  and  the  variations  of  traffic  of  the 
latter  are  surely  easier  to  explain  and  to  forecast  than  the  changes 
of  level  of  the  former. 

For  an  explanation  of  this  regularity  which  is  so  strange  at 
first  sight,  it  would  be  sufficient,  to  begin  with,  to  consider  how 
important  a  part  is  played  in  social  facts  by  the  involuntary  and 
the  unwitting ;  for  instance,  the  influence,  or  rather  the  tyranny, 
exercised  over  our  daily  conduct  by  habit,  imitation,  and  heredity, 
—  those  three  factors  which  have  the  common  attribute  of  being 
absolutely  independent  of  our  will  (see  M.  Tarde's  very  inter- 
esting book  Les  lois  de  V imitatioti) . 

But,  in  truth,  it  is  not  even  necessary  for  an  explanation  of  this 
phenomenon  to  restrict  the  lield  of  human  liberty.  The  regularity 
of  economic  and  social  facts  is  not  opposed  to  liberty ;  on  the 
contrary,  it  is  the  consequence  of  this  liberty  when  enlightened 
and  deliberate.  Imagine  a  world  in  which  all  men  were  absolutely 
free,  absolutely  wise ;  the  march  of  events  therein  would  be  cer- 
tainly far  more  regular  even  than  it  is  with  us.  If,  on  the  other 
hand,  all  men  were  mad,  then,  but  then  only,  would  disorder  and 
chaos  be  the  law  of  this  world,  and  economic  facts  would  be 
beyond  the  pale  of  all  rational  prediction, 

Kant,  the  metaphysician  of  free  will,  fully  admits,  however,  the 
existence  of  natural  laws  in  the  social  sciences.  "  In  whatever 
way  free  will  may  be  represented  in  metaphysics,  its  manifestations 
are  in  human  actions  determined,  like  every  other  phenomenon, 
by  general  laws  of  nature.     History,  which  deals  with  the  recital 


GENERAL    NOTIONS.  1$ 

of  these  manifestations,  however  deeply  their  causes  be  hidden, 
does  not  abandon  one  hope  ;  viz.,  that  in  observing  the  play  of  free 
will  on  a  large  scale  it  may  discover  therein  a  regular  movement. 
.  .  .  Thus  marriages,  births,  and  deaths  do  not  seem  to  be 
subject  to  any  rule  which  would  admit  of  the  calculation  of  their 
number  beforehand  ;  yet  the  yearly  tables  drawn  up  in  some  great 
countries  testify  that  in  this  matter  as  close  obedience  is  paid  to 
constant  laws  as  is  paid  by  the  variations  in  the  atmosphere,  the 
growth  of  plants,  the  course  of  rivers,  and  the  remainder  of  the 
economy  of  nature.  Individuals,  nay,  whole  peoples,  do  not  in 
the  least  imagine  that  though  following  each  of  them  their  own 
bent  and  often  engaging  in  strife  with  one  another,  they  are  still 
unconsciously  obeying,  just  as  the  bees  and  the  beavers,  the 
design  of  nature  which  is  unknown  to  them,  and  are  contributing 
to  an  evolution,  which,  even  could  they  be  aware  of  it,  would  be 
of  little  matter  to  them."  —  Kant,  Idea  of  an  Universal  History. 
Edition  Hartenstcin,  IV,  143. 

Prediction,  in  fact,  is  the  criterion  by  which  we  recognize  the 
existence  of  natural  laws,  and  consequently,  too,  the  character  of  a 
true  science.  If,  indeed,  facts  are  linked  together  in  a  certain 
order,  like  a  well-managed  procession  in  which  each  member 
keeps  its  place  and  observes  its  distances,  if  there  is,  to  use  a 
current  phrase,  a  "  march  "  of  events,  it  should  always  be  possible, 
one  fact  being  given,  to  foresee  what  should  follow  or  accompany 
it.  In  some  sciences,  on  account  of  their  simplicity,  this  power 
of  prediction  is  so  extensively  exercised  that  it  stupefies  the  vulgar 
and  assumes  the  shape  of  actual  prophecy ;  for  instance,  the 
predictions  of  astronomy.  In  the  physical  and  natural  sciences 
prediction  rarely  cleaves  the  future,  but  yet  in  more  modest 
measure  it  enables  the  chemist,  combining  two  substances  in  a 
crucible,  to  say  what  body  will  result  from  this  combination  and 
what  its  properties  will  be  ;  and  by  its  aid  the  geologist  can  state 
the  various  strata  that  will  be  met  with  in  the  piercing  of  a  tunnel 
or  the  sinking  of  a  mine -shaft.  The  naturalist  who  sees  for  the 
first  time  an  unknown  animal,  even  before  dissecting,  can  tell  in 


14  PRINCIPLES    OF    POLITICAL   ECONOMY. 

advance,  from  certain  external  signs,  what  organs  will  meet  his 
scalpel,  and  their  order  of  presentation.  Is  the  economist  capable 
of  availing  himself  of  a  similar  faculty  of  prediction,  thanks  to  his 
scientific  pretensions  ? 

He  is,  undoubtedly.  Of  two  objects  of  the  same  quality  but 
of  unequal  value,  he  can  foretell  that  the  buyer  will  choose  the 
less  dear ;  or  if  that  instance  be  too  trivial,  he  can  nowadays, 
from  various  signs,  such  as  the  rate  of  exchange,  which  is  neither 
more  nor  less  certain  than  the  warnings  given  to  the  sailor  by 
the  barometer,  observe  and  foresee  the  approach  of  commercial 
crises.  We  shall  have  occasion  to  see  other  instances.  If  into 
any  country  an  inferior  money  be  introduced,  say  paper  money, 
the  speedy  disappearance  of  the  good  money  can  be  safely  pre- 
dicted (see  Gt-eshani's  Latv).  By  the  simple  sight  of  the  rate  of 
exchange  one  can  judge  of  the  financial  and  commercial  condi- 
tion of  a  country  (see  Exchange).  Stanley  Jevons  has  even  es- 
sayed to  prove  that  there  is  a  ten-yearly  cycle  in  commercial 
crises  parallel  to  that  shown  by  astronomical  phenomena,  to  which 
his  daring  theory  strove  to  relate  them  (see  Crises). 

We  must  point  out  that  even  those  who  are  the  most  vehement 
in  refusing  to  economists  the  possibility  of  prediction  in  economic 
questions,  do  not  fail,  however,  to  employ  it  themselves  in  their 
ordinary  course  of  life  and  in  the  management  of  their  daily  busi- 
■  ness.  The  financier  who  buys  a  share  in  the  Suez  Canal  or  in  a 
railway  foresees  the  continuity  and  the  progressive  increase  of  a 
particular  traffic  in  a  fixed  direction,  and  his  purchase  of  the  share 
at  a  high  rate  testifies,  whether  he  will  or  no,  to  his  firm  confi- 
dence in  the  regularity  of  one  economic  law.  Every  one  who 
speculates  —  and  who  is  there  who  does  not  speculate? — resorts  to 
prediction  after  his  own  fashion ;  this,  no  doubt,  is  too  often  exer- 
cised in  a  haphazard  manner,  but  it  might  be  used  scientifically  : 
taking  it  all  in  all,  the  speculator,  as  far  as  he  is  concerned,  con- 
siders prediction  to  be  perfectly  rational. 

True  enough,  in  this  sphere  forecasts  are,  as  is  sometimes  said, 
only  approximate  ones,  and  cannot  be  expected  to  reach  any 


GENERAL    NOTIONS,  1 5 

mathematical  precision.  But  it  would  be  utterly  absurd  to  con- 
clude that,  because  exact  prediction  is  not  possible,  therefore  there 
are  no  laws  at  all !  No  one  can  hold  that  wind,  rain,  hail,  or 
storms  are  the  result  of  chance,  much  less  of  human  will.  They 
are  certainly  ruled  by  natural  laws.  Yet  forecasts  are  no  more 
exact  in  this  branch  than  they  are  in  economics,  and  a  commercial 
crisis  can  be  more  safely  predicted  than  can  a  cyclone. 

If  our  predictions  in  political  economy  are  always  uncertain 
and  do  not  look  far  m  advance,  the  reason  of  this  must  be  sought, 
not  at  all  in  the  non-existence  of  economic  laws  or  in  a  sup- 
posed want  of  order  in  events,  but  purely  m  our  ignorance  of 
causes,  just  as  m  meteorology.  Whatever  may  be  one's  opinion 
as  to  free  will,  it  is  not  doubtful,  as  John  Stuart  Mill  says,  "  That 
given  the  motives  which  are  present  to  an  individual's  mind,  and 
likewise  the  character  and  disposition  of  the  individual,  —  if  we 
knew  the  person  thoroughly  and  knew  all  the  inducements  which 
are  acting  upon  him,  —  we  could  foretell  his  conduct  and  the  man- 
ner in  which  he  will  act."  —  Logic,  VI,  ii,  sect.  2,  page  422, 

Such  motives  will  never  be  known  to  us  exactly.  Luckily,  in 
the  treatment  of  economic  facts,  we  have  not  to  forecast  the  con- 
duct of  any  one  individual  considered  by  himself;  all  that  con- 
cerns us  is  the  cotiduct  of  men  viewed  en  7nasse  ;  we  have  only  to 
deal  with  averages,  and  therefore  have  no  need  of  that  exactness 
which  is  indispensable  to  the  astronomer  or  the  physicist, 

IV.   THE   FOUR   ECONOMIC   SCHOOLS.^ 

The  science  of  Political  Economy  is  divided  into  numerous 
schools  (into  almost  as  many  as  philosophy),  which  is  an  incon- 
testable sign  of  inferiority.  It  is  no  real  consolation  to  say  that 
the  science  has  existed  for  scarcely  more  than  a  century,  and  that 
age  will  remedy  this  defect.     Other  sciences  which  are  no  older, 

^  In  an  Address  given  at  Geneva  in  March,  1890,  our  author  classifies  the 
schools  as  those  of  Liberty,  Authority,  Equality,  and  Solidarity,  respectively; 
and  he  ranks  himself  with  the  last.  —  J.  B, 


l6  PRINCIPLES    OF    POLITICAL   ECONOMY. 

some,  indeed,  which  are  younger,  have  already  succeeded  in  de- 
veloping a  collection  of  principles  sound  enough  to  gain  the  unan- 
imous adhesion  of  all  their  students.  As  this  is  not  the  case  with 
economics,  many  keen  intellects  refuse  to  grant  it  the  title  of 
"  science,"  or  at  any  rate  declare  that  such  a  title  is  a  premature 
one.  Yet  it  is  well  to  remark  that  the  various  schools  differ  from 
one  another  far  less  about  the  explanation  of  economic  phenomena 
than  about  the  mode  of  studying  them,  the  way  of  judging  them, 
and  the  practical  consequences  that  can  be  deduced.  The  pos- 
sibility of  a  common  understanding  is  not  remote  when  the  ques- 
tion is,  for  example,  the  discovery  of  the  causes  of  the  inequality 
of  wealth;  but  when  the  subject  for  discussion  is  to  determine 
whether  this  inequality  of  conditions  is  a  good  thing  in  itself,  and 
especially  whether  any  attempt  at  modification  is  necessary,  then 
it  is  that  divergences  of  opinion  become  marked.  They  arise, 
then,  from  the  moral  and  political  character  of  this  science,  and 
probably  will  never  disappear,  though  there  is  reason  to  hope  that 
on  certain  essential  principles  some  agreement  will  be  arrived  at. 

Section  i.    The  Liberal  School. 

The  first  of  these  schools  is  what  is  called  classical,  on  account 
of  its  having  appeared  first,  and  having  long  reigned  without  a 
rival ;  or  liberal,  in  virtue  of  the  famous  formula  which  is  its  motto. 
But  is  it  really  a  school  ?  Its  partisans  reply  to  such  a  question 
with  some  hauteur,  and  claim  to  represent  the  science  itself;  they 
assume,  and  for  the  most  part  receive,  even  from  their  opponents, 
the  name  of  econofnisls,  and  nothmg  more.  The  latter,  however, 
sometimes  term  it,  not  without  a  touch  of  irony,  the  orthodox,  or 
individualist,  school.  Its  doctrine  is  very  simple,  and  may  be 
summed  up  as  follows  :  — 

Human  societies  are  governed  by  natural  laws  which  we  could 
not  alter  one  jot,  even  if  we  wished,  since  they  are  not  of  our 
making.  Moreover,  we  have  not  the  least  interest  in  modifying 
them,  even  if  we  could;  for  they  are  good,  or,  at  any  rate,  the  best 
possible.     ("  The  laws  which  govern  capital,  wages,  and  the  dis- 


GENERAL    NOTIONS. 


17 


tribution  of  wealth  are  as  good  as  they  are  inevitable.  They  bring 
about  the  gradual  elevation  of  the  level  of  humanity."  —  Leroy- 
Beaulieu,  Precis  d'economie  politique.)  The  part  of  the  econo- 
mist is  confined  to  discovering  the  action  of  these  natural  laws ; 
and  it  is  for  men  and  governments  to  strive  to  regulate  their 
conduct  according  to  them. 

These  laws  are  in  nowise  opposed  to  human  liberty;  on  the 
contrary,  they  are  the  expression  of  relations  which  are  spontane- 
ously established  between  men  living  in  society,  wherever  these 
men  are  left  to  themselves,  and  are  free  to  act  according  to  their 
interests.  Thus,  between  these  individual  interests  which  are 
apparently  antagonistic  a  harmony  is  estabUshed,  which  exactly 
represents  the  natural  order  of  things,  and  is  far  superior  to  any 
artificial  combination  which  could  be  imagined. 

The  part  of  the  legislator,  if  he  wishes  to  insure  social  order 
and  progress,  is  confined,  then,  to  developing  these  individual 
initiatives  as  far  as  possible,  to  doing  away  with  whatever  might 
interfere  with  them,  and  to  prevent  individuals  from  harboring  ill 
will,  or  being  biassed  one  against  the  other.  Therefore  the  inter- 
vention of  the  powers  that  be  ought  to  be  reduced  to  that  minimum 
which  is  indispensable  to  the  security  of  each  and  of  all ;  in  a 
word,  to  laisser  faire.  "  We  assert  that  these  natural  laws  govern 
the  production  and  distribution  of  wealth  in  the  manner  which  is 
the  most  useful ;  i.e.  the  most  conformable  to  the  general  good 
of  the  human  species.  Observation  of  them,  together  with  the 
smoothing  away  of  the  natural  obstacles  which  impede  their  action, 
and  especially  the  prevention  of  any  artificial  obstacles,  is  suffi- 
cient to  render  the  condition  of  man  as  good  as  is  consistent  with 
the  state  of  advancement  of  his  acquirements  and  his  industries. 
Our  gospel,  therefore,  is  summed  up  in  these  four  words,  '  Laisser 
faire,  laisser  passer.'  "  —  De  Molinari,  Les  lois  naturelles. 

The  whole  of  Bastiat's  famous  work,  the  Hartnofiies  ccono- 
niiques,  is  nothing  but  the  development  of  these  ideas. 

This  conception  assuredly  lacks  neither  simplicity  nor  grandeur. 
Whatever  destiny  be  in  store  for  it,  it  will  at  least  have  the  merit 


l8  PRINCIPLES    OF    POLITICAL    ECONOMY. 

of  having  assisted  to  establish  the  science  of  poUtical  economy ; 
and,  if  some  day  other  doctrines  take  its  place,  it  will  none  the 
less  be  the  foundation  upon  which  they  are  built. 

The  most  serious  complaint  that  can  be  made  against  this  body 
of  teaching  is  a  very  marked  tendency  to  optimism,  which  ap- 
pears to  be  inspired  far  less  by  a  truly  scientific  spirit  than  by  a 
desire  to  justify  the  existing  order  of  things.  Undoubtedly,  from 
a  consideration  of  the  economic  organization  of  a  society  and  of 
the  institutions  which  are  its  groundwork,  the  conclusion  may  be 
drawn  that  they  are  beneficial,  at  any  rate  in  certain  aspects ;  for 
the  very  fact  of  their  existence  and  duration  shows  well  enough 
that  they  have  a  value  which  is  at  least  relative ;  further,  that 
they  are  natural  is  a  just  conclusion  to  make,  for  they  are  evidently 
determined  by  the  series  of  previous  states  which  produced  them. 
But  in  nowise  can  it  be  inferred  that  they  are  the  best  possible  ; 
that  conclusion  is  altogether  illogical.  Auguste  Comte,  years  ago, 
protested  in  the  name  of  science  against  "  this  systematic  tendency 
to  optimism  which  is  clearly  theological  in  origin"  {Cours  de 
philosophic  positive,  48^  legon). 

But  this  doctrine  cannot  even  offer  the  excuse  that  it  agrees 
with  theology,  as  Comte  supposes ;  for  Christian  theology  is  less 
optimistic  than  anything  else.  On  the  contrary,  in  its  eyes,  the 
actual  order  of  things  and  all  the  manifestations  of  human  liberty 
are  irretrievably  vitiated  by  the  Fall. 

Nor  is  it  any  more  legitimate  to  conclude  that  because  natural 
laws  are  permanent  and  immutable,  the  existing  economic  facts 
and  institutions  should  also  possess  this  character  of  permanence 
and  immutability.  That,  too,  is  a  sophism,  not  to  say  word-jug- 
glery. If,  on  the  othfer  hand,  as  contemporary  science  shows  a 
tendency  to  believe,  the  natural  law,  par  excellence,  is  that  of 
evolution,  then  it  would  be  necessary  to  say  that  natural  laws,  far 
from  excluding  the  idea  of  change,  always  presuppose  it.  When 
the  Socialists,  for  instance,  maintain  that  the  wages  system  is 
bound  to  disappear,  because,  just  as  it  has  succeeded  to  serfdom 
and  slavery,  so  it  too  will  be  replaced  in  turn  by  co-operation  or 


GENERAL    NOTIONS.  I9 

some  Other  at  present  not  named  state,  their  line  of  argument 
can  no  doubt  be  criticised ;  but  it  cannot  be  stigmatized  as  con- 
tradicting natural  laws,  since  these  very  laws  cause  the  same  plant 
to  produce  in  succession,  first  seed,  then  flower,  then  fruit. 

Not  only  can  economic  facts  and  institutions  suffer  change,  but 
also  our  will  is  by  no  means  powerless  in  bringing  about  these 
alterations.  Indeed,  this  will  is  every  day  and  in  the  most  effica- 
cious manner  exercised  on  physical  facts  for  their  modification 
according  to  our  needs,  and  this  reasoned  human  action  on  natural 
phenomena  is  not  in  the  slightest  incompatible  with  the  idea  of 
natural  law ;  on  the  contrary,  it  is  closely  bound  up  with  it.  As 
M.  Espinas  wittily  remarks  in  his  Societes  afiwiaks,  "  If  human 
activity  was  incompatible  with  the  order  of  things,  the  act  of 
boiling  an  egg  would  have  to  be  regarded  as  a  miracle."  If,  in 
truth,  the  idea  of  law  were  non-existent,  if  there  were  no  bond 
between  phenomena,  if  a  cause  might  produce  a  certain  effect, 
or  might  not ;  in  a  word,  if  chance  were  the  ruler  of  the  world, 
man  would  be  powerless  to  do  aught,  or  to  attain  any  end  what- 
ever ;  for  while  modifying  such  and  such  a  fact  he  would  never 
know  what  the  result  was  to  be,  and  his  acts  would  be  those  of  a 
blind  man.  Man  erects  lightning  conductors  to  protect  his  build- 
ings because  he  believes  in  a  natural  law,  viz.  that  metallic  points 
exert  a  certain  influence  on  electricity  ;  but,  if  electricity  followed 
at  random  any  track,  it  is  clear  that  Franklin's  invention  would 
be  useless. 

Besides,  the  mere  opening  of  the  eyes  enables  us  to  perceive 
at  once  man's  marvellous  power  of  modifying  natural  phenomena. 
Some,  no  doubt,  from  their  immensity  or  their  distance,  obtain 
immunity  from  all  acts  of  ours,  —  say,  astronomical,  or  geological, 
or  even  meteorological  phenomena :  then  we  have  but  to  submit 
to  them  in  silence,  and  our  power  of  prediction  does  not  enable 
us  to  escape  from  a  shock  from  a  comet  or  from  an  earthquake ; 
but  how  many  other  domains  are  there  in  which  our  knowledge  is 
almost  supreme  !  Most  of  the  compounds  of  inorganic  chemistry 
(the  most  important  ones,  by  the  way)  have  been  made  by  the 


20  PRINCIPLES    OF    POLITICAL    ECONOMY. 

man  of  science  in  his  laboratory.  On  seeing  the  cattle-breeder 
in  his  stalls,  the  horticulturist  in  his  gardens,  ceaselessly  modifying 
animal  or  vegetable  forms  and  creating  new  races,  it  seems  as  if 
animate  Nature  herself  submitted  to  a  process  of  kneading  like 
inert  matter.  Even  atmospheric  phenomena  do  not  entirely  escape 
from  the  power  of  human  industry ;  the  latter,  indeed,  makes  bold 
to  assert  that  by  fitting  clearances,  or  by  new  plantations,  it  will 
modify  the  government  of  the  winds  and  the  waters,  and,  repeating 
the  miracle  of  the  prophet  Elisha,  will,  whenever  it  wishes,  bring 
down  from  heaven  the  rain  and  the  dew. 

In  much  greater  measure,  our  activity  can  be  exercised  on  eco- 
nomic facts,  precisely  because  they  are  acts  done  by  man,  and  we 
have  immediate  hold  over  them.  Even  the  teachings  of  the  deter- 
minist  school,  those  who  deny  free  will  (and  surely  the  liberal 
school  are  not  among  such)  recognize  that  man  has  the  power  of 
modifying  the  order  of  things  in  which  he  lives.  They  only  make 
this  reservation  :  that  every  act  of  man  is  itself  predetermined  by 
certain  causes ;  but  that  is  a  question  in  pure  metaphysics  into 
which  we  have  not  to  enter  in  this  place.  Without  doubt,  here  as 
in  the  sphere  of  physical  phenomena,  this  action  of  ours  is  restricted 
within  certain  limits,  which  science  tries  to  mark  out,  and  which  all 
men,  whether  acting  individually  by  means  of  private  enterprise,  or 
acting  collectively  under  legislative  regulation,  should  make  it  in- 
<:umbent  upon  themselves  to  respect.  Here  we  might  quote  Bacon's 
old  adage,  "  Naturae  non  imperatur  nisi  parendo  "  ;  for  the  modifi- 
<:ation  of  economic  facts,  economic  laws  must  be  kno\vn  and  con- 
formed to.  Alchemy  strove  to  turn  lead  into  gold  ;  chemistry  has 
abandoned  that  useless  quest,  having  found  that  these  two  bodies 
are  simple  elements,  or  at  least  irreducible  ones ;  but  it  has  not 
renounced  the  attempt  of  converting  charcoal  into  diamond,  for 
in  this  case  it  has  established  the  presence  of  one  single  body  in 
two  different  states.  The  Utopian  uselessly  tortures  nature  to  ask 
and  obtain  what  it  cannot  give  him ;  the  man  of  science  asks  only 
for  what  he  knows  to  be  possible.  But  the  sphere  of  this  term 
•*  possible  "  is  for  wider  than  the  classical  school  imagines. 


GENERAL    NOTIONS.  21 


Section  2.    The  Socialist  School. 


The  socialist  school  is  as  old  as  the  classical  school ;  older,  we 
may  even  say,  for  there  were  socialists  long  before  there  was  any 
political  economy.  As  the  doctrines  of  this  school  are  especially 
critical  in  nature,  they  are  far  harder  to  formulate  than  those  of 
the  preceding  school.  Still  they  may  be  summed  up  as  follows, 
at  any  rate,  in  their  essential  features. 

The  various  socialist  schools  hold  that  the  organization  o( 
modern  societies  is  tainted  by  certain  essential  vices,  and  is  there^ 
fore  destined  to  disappear  at  a  more  or  less  near  future.  In  their 
eyes,  this  organization  is  not  in  the  least  a  natural  product  or 
liberty,  but  is  the  result  of  a  long  series  of  acts  of  injustice  ancj 
spoliation  which  have  been  in  a  measure  hallowed  by  written  laws. 

Their  special  objects  of  attack  are  private  property  and  free 
competition,  and  their  aim  is  to  prove  that  the  action  of  these  two 
great  springs,  which  set  in  motion  the  whole  social  organism,  tends 
to  sacrifice  social  to  private  interest,  and  to  enable  a  few  privi- 
leged persons  to  live  at  the  expense  of  the  huge  body  of  the 
disinherited. 

They  wait,  then,  for  a  new  order  of  things,  in  which  private 
property,  if  not  completely  abolished,  will  at  any  rate  be  reduced 
to  the  minimum  which  is  compatible  with  the  just  requirements 
of  human  personality,  and  in  which  personal  interest  will  no  longer 
be  the  sole  motor  power,  and  will  be  subordinated  to  the  collec- 
tive welfare.  As  to  the  manner  in  which  this  future  society  is  to 
be  brought  about,  the  various  schools  have  numerous  divergent 
theories.  Some,  who  might  be  called  idealists,  but  who  are  most 
usually  termed  Utopians,  and  whose  doctrines  are  nowadays  some- 
what, perhaps  too  much,  discredited,  strive  to  build  up  this  future 
society  like  a  new  house,  with  certain  a  priori  principles  of  justice 
as  foundation  and  as  scale.  Others,  who  proudly  assume  the  title 
of  scientific  socialism,  assert  that  this  future  society  will  siid  sponte 
issue  forth  from  present  society,  like  a  butterfly  from  its  chrysaHs. 
In  the  most  interesting  and  original  portion  of  their  thesis  they 


22  PRINCIPLES    OF    POLITICAL    ECONOMY. 

labor  to  prove  that  this  society  of  the  future  is  now  reposing,  in 
the  state  of  an  embryo,  in  the  womb  of  our  present-day  societies, 
which  are  already  ripe  for  such  a  birth.  It  is  sometimes  care- 
lessly said  that  this  school  contests  the  existence  of  natural  laws ; 
that  is  perfectly  incorrect.  On  the  contrary,  it  is  irreconcilably 
determinist ;  only,  while  for  the  liberal  school  the  term  "  natural 
law  "  implies  the  idea  of  stability  and  immutabihty,  to  the  socialist 
school  it  presents  the  idea  of  unlimited  change  and  transformation. 
Instead  of  regarding  human  societies  as  Bastiat  regarded  the  solar 
system,  as  turning  round  a  fixed  point  and  suspended  in  an  eternal 
and  changeless  equilibrium,  it  pictures  them  in  the  shape  of  a 
plant  or  an  animal,  which  from  birth  to  death  is  undergoing  cease- 
less transformations.  We  must  confess  that  this  is  exactly  the 
standpoint  of  contemporary  science.  Even  the  solar  systems 
undergo  change  and  transformation. 

In  general,  save  for  a  few  exceptions,  it  considers  the  Revolution 
to  be  indispensable  for  the  substitution  of  the  new  order  in  place 
of  the  present.  Coming  from  evolutionists,  this  manner  of  looking 
at  things  is  at  first  sight  rather  astounding  ;  they  attempt  to  justify 
it  by  noting  that  the  process  of  evolution  is  often  accomplished 
by  means  of  crises ;  i.e.  by  the  brusque  and  even  violent  passage 
from  one  state  to  another.  They  instance  the  chrysalis,  which, 
before  becoming  butterfly,  must  tear  away  its  cocoon ;  or  the 
chicken,  which,  to  leave  the  egg,  must  break  the  shell  with  its 
beak. 

All  these  schools  (save  one  alone,  the  anarchist  school,  which, 
on  the  contrary,  is  violently  individualist)  are  naturally  disposed 
to  extend  as  far  as  possible  the  functions  of  the  collective  powers, 
represented  by  the  State  or  by  the  municipalities,  since  their  aim  is 
to  transform  into  public  agencies  all  that  which  to-day  springs 
from  private  enterprise.  It  is  only,  however,  as  a  transition  step 
that  socialism  asks  for  the  extension  of  the  functions  of  the  State. 
For  it  professes  the  greatest  contempt  for  the  State  as  it  is  to-day, 
the  bourgeois  State,  as  it  terms  it,  which  looks  after  its  interests 
and  carries  on  its  enterprises  by  the  same  methods  as  are  used  by 


GENERAL    NOTIONS.  23 

individuals.  In  its  plans  for  reorganizing  future  society,  this  school 
avoids  even  pronouncing  the  word  "  state,"  and  prefers  to  use  the) 
term  "society."  The  State,  in  the  socialist  plan,  is  to  lose  all 
political  character,  so  as  to  become  purely  economic ;  it  is  to 
become  something  analogous  to  the  administrative  council  of  a 
huge  co-operative  society,  embracing  the  entire  country.  It  is 
on  this  point  that  true  socialism  can  be  distinguished  from  State 
socialism. 

At  this  stage  we  cannot  gauge  the  value  of  the  criticisms  directed 
by  the  socialist  school  against  the  existing  order  of  things ;  we 
shall  come  across  them  once  more  in  the  course  of  our  further 
exposition.  Suffice  it  to  say  here  that  they  appear  to  contain  a 
somewhat  large  portion  of  truth.  It  is  especially  from  the  critical 
point  of  view  that  contemporary  socialism  has  produced  some 
remarkable  works ;  notably,  those  of  Proudhon  in  France,  and 
those  of  Karl  Marx  in  Germany. 

But  it  is  from  the  positive,  or,  if  it  is  preferred,  the  constructive 
point  of  view,  that  the  weak  side  of  this  school  is  discoverable ; 
and  we  must  observe  that  its  most  distinguished  leaders,  especially 
those  whose  names  have  been  just  mentioned,  have  prudently 
avoided  any  entrance  into  that  field.  The  detailed  exposition  of 
the  socialist  ideal  may,  however,  be  seen  in  SchafHe's  Quintes- 
senz  des  Socialismus  (a  German  book,  which  has  been  trans- 
lated into  French  and  into  English),  in  Gronlund's  Co-operative 
Commonwealth,  and  in  Bellamy's  very  successful  novel,  Lookmg 
Backward.  In  fact,  whatever  be  the  imperfections,  or  even  dan- 
gers, of  personal  interest,  and  the  desire  to  grow  rich,  as  the  motor 
power  of  the  economic  mechanism,  it  is  not  easy  to  see  by  what 
other  means  men  can  be  made  to  stir.  There  are  only  two  possible 
means,  —  compulsion  and  love.  Now  love,  or  altruism,  as  it  is 
called  in  opposition  to  egoism,  would  indeed  be  the  true  solution, 
and  we  must  hope  for  its  realization  in  the  future.  But  the  so- 
cialists, who  are  relying  on  such  a  motor  force  at  this  time  of  day, 
are  certainly  showing  their  possession  of  an  optimism  which  is 
as  stubborn  in  its  own  way  as  that  for  which  we  were  just  now 


24  PRINCIPLES    OF    POLITICAL    ECONOMY. 

blaming  the  economists.  Before  man  makes  up  his  mind  to  work 
purely  out  of  love  for  his  neighbor,  a  more  radical  transformation 
would  be  necessary  than  could  be  brought  about  by  any  social 
revolution,     Man  would  have  to  procure  a  new  heart. 

There  is,  therefore,  reason  to  fear  that,  the  motor  spring  of  love 
failing  them,  the  socialists  will  be  obliged  to  fall  back  upon  com- 
pulsion ;  now,  besides  the  circumstance  that  the  loss  of  liberty 
would  be  too  high  a  price  to  pay  for  the  general  welfare,  even 
at  this  price  it  is  doubtful  whether  the  desired  result  could  be 
attained.  For,  in  order  that  the  production  of  wealth  shall  be 
abundant,  the  employment  of  individual  energy  is  always  requi- 
site, and  experience  shows  that  a  regime  of  compulsion  forbids 
the  full  exercise  of  such  energies.  Further,  many  socialists  be- 
lieve that  they  will  be  able  to  dispense  with  individual  initiative, 
and  have  recourse,  instead,  to  the  action  of  collective  bodies,  the 
State,  municipalities,  powerfully  organized  corporations,  and  so 
forth  ;  but  this  hope  is  based  on  no  sounder  foundation  than  that 
mentioned  above.  For  every-day  experience  teaches  us  that  asso- 
ciations, great  or  small,  are  worth  not  a  jot  more  than  the  indi- 
viduals of  whom  they  are  composed.  Consequently,  every  system 
which  will  tend  to  reduce  individual  energy  will  not  stand  a  great 
chance  of  gaining  anything  especially  advantageous  from  collec- 
tive enterprises,  however  ingeniously  they  may  otherwise  be  organ- 
ized. 

Section  3.    The  Catholic  or  Christian  School. 

^^though  the  very  epithet  which  is  used  as  the  distinguishing 
mark  of  this  school  appears  to  put  it  outside  the  pale  of  scientific 
classification,  yet  in  some  countries  it  has  obtained  too  great  a 
development,  and  even  from  the  purely  economic  standpoint  (our 
only  object  of  study  here)  it  presents  too  characteristic  features 
for  us  to  pass  it  by  in  silence. 

The  Catholic  school,  like  the  classical  school,  firmly  believes 
in  the  existence  of  natural  laws,  called  by  it  providential  laws, 
which  govern  social  as  well  as  physical  facts.     But  it  believes  that 


GENERAL    NOTIONS.  25 

the  working  of  these  providential  laws  may  be  seriously  deranged 
by  the  action  of  human  liberty,  and  that  this  indeed  has  actually 
come  to  pass  by  man's  own  fault ;  the  world  is  not  what  it  was 
destined  to  be,  what  God  would  have  wished  it  to  be.  We  must 
observe  that  Fourier's  theory^  also  consisted  of  the  asseveration 
that  for  man  there  is  "  a  plan  of  God  "  the  secret  of  which  has 
been  lost  through  man's  own  fault,  but  which  he  must  try  and 
rediscover.  The  Catholic  school  differs  from  the  liberal  school 
in  not  being  in  the  least  optimistic ;  it  regards  the  social  order  of 
things  neither  as  good,  nor  even  as  naturally  tending  towards  the 
best ;  above  all,  it  does  not  trust  to  laisser  faire  for  the  re- estab- 
lishment of  harmony  and  the  confirmation  of  progress ;  for  it  is 
in  this  very  liberty,  or  rather  in  liberaUsm,  that  it  discovers  the 
real  cause  of  social  disorganization. 

To  take  its  programme  :  it  hopes  to  re-establish  social  concord 
by  the  influence  of  a  triple  authority,  that  of  the  father  in  the 
family,  of  the  employer  in  the  workshop,  and  of  the  Church  in  the 
State,  these  several  "social  authorities,"  of  course,  being  bound  to 
carry  out  reciprocal  duties.  It  is  not  hostile  to  the  interference 
of  the  State,  which,  to  quote  the  words  of  Pope  Leo  XIII.,  "  is, 
after  the  Church,  God's  minister  for  good." 

The  vehemence  of  the  criticisms  made  against  the  present 
organization  of  society  by  the  Catholic  school,  together  with  its 
appeal  to  State  interference  in  certain  cases,  has  caused  economists 
of  the  liberal  school  to  call  it  Christian  socialism.  Against  this 
imputation  it  vigorously  protests,  and  in  truth,  except  for  certain 
points  of  view  which  are  common  to  them,  it  differs  from  the 
socialist  school  toto  orbe. 

Firstly,  in  that  it  has  no  intention  of  abolishing  the  fundamental 
institutions  of  social  affairs  as  they  are,  such  as  property,  inheri- 
tance, the  wages  system,  etc. ;  but  proposes,  on  the  contrary,  to 
restore,  that  is  to  say,  to  strengthen  them. 

^The  features  of  Fourier's  system  are  described  in  detail  by  Professor  Gide 
in  his  introduction  to  the  volume  Charles  Fourier,  CEuvres  Choisies  (^Petite 
Biblioth'eqtie  Economiqite,  Guillaumin,  1890).  —  J.  B. 


26  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Secondly,  in  that  it  disbelieves  in  evolution  and  in  the  indefi- 
nite progress  of  the  human  species,  and  seeks  its  ideal  far  less 
in  the  future  than  in  a  return  to  some  of  the  institutions  of  the 
past,  for  instance,  to  the  family  stock,  to  rural  life,  and  to  pro- 
fessional corporations  of  employers  and  workmen  acting  together. 

The  term  "  family  stock  "  {/amille  souche)  is  used  by  the  school 
of  Le  Play  to  designate  the  family  strongly  bound  together  and 
stable  as  in  older  days,  so  as  to  form  a  small  permanent  society 
existing  within  society  at  large.  This  is  in  opposition  to  the  un- 
stable and  constantly  scattered  family  which  is  the  characteristic 
feature  of  modern  societies. 

Le  Play's  school  is  a  branch  of  the  Catholic  school,^  which,  how- 
ever, is  differentiated  from  the  latter,  and  therefore  becomes  more 
approximated  to  the  liberal  school,  by  a  stronger  tendency  to  lay 
action  as  opposed  to  Church  interference,  and  by  a  narrower  limi- 
tation of  the  sphere  of  State  interference. 

Brushing  aside  all  controversy  that  might  trench  on  political  or 
religious  ground,  the  strongest  objection  that  could  be  made  to 
this  body  of  doctrine  taught  by  the  Catholic  school  was  long  ago 
formulated  by  John  Stuart  Mill,  when  he  asserted  that  there  was 
no  example  of  any  class  whatever,  when  in  possession  of  power, 
having  exercised  that  power  for  the  benefit  of  the  other  classes  of 
the  community.  It  is  greatly  to  be  feared  that,  if  ever  the  task  of 
solving  the  social  problem  were  entrusted  solely  to  the  ruling 
classes  as  employers,  the  mournful  fact  animadverted  on  by  John 
Stuart  Mill  would  receive  but  one  confirmation  the  more. 

There  is  also  a  Christian  (but  not  Catholic)  socialism  which  is 
taking  a  more  prominent  place  in  Protestant  countries,  both 
in  England  and  in  the  United  States.^    Though  denouncing  the 

1  See  the  article  of  Mr.  H.  Higgs  "  Frederic  Le  Play "  in  the  Harvard 
Quarterly  yoiirnal  of  Econo7nics,  July,  1 890.  —  J.  B. 

2  A  sign  of  its  presence  in  England  is  the  formation  of  the  "  Christian  Social 
Union  "  and  the  publication  of  its  organ,  the  Economic  Review.  The  leading 
members  and  writers  are  adherents  of  the  High  Church  party  in  the  English 
Church.  — J.  B. 


GENERAL    NOTIONS.  ^  Z'J 

iniquities  of  the  existing  social  order  with  no  less  severity  than 
the  Catholic  school,  and  likewise  waiting  for  "  a  land  in  which 
justice  dwells,"  it  is  deeply  divided  from  the  Catholic  school  by  its 
programme.  For  the  conservation  of  social  p>eace  or  concord  it 
relies  less  on  the  authority  of  a  few  "  classes  "  than  in  the  increas- 
ing solidarity  of  all  classes,  and  co-operative  institutions  appear 
to  it  to  be  the  best  means  for  bringing  about  such  a  solidarity. 
Thus,  though  it  does  not  in  a  general  way  refuse  all  State  inter- 
ference, still  it  is  jealous  to  preserve  all  individual  energy. 

Section  4.    The  Historical  or  Realist  School. 

The  school  which  was  at  first  called  "  historical,"  or  that  of  the 
"  socialists  of  the  chair  "  {Katheder  socialisteti) ,  but  which  more 
readily  receives  the  name  of  the  realist  school,  sprang  from  a 
reaction  against  the  classical  school,  as  regards  both  its  method 
and  its  tendency.  It  first  saw  the  light  in  Germany  about  forty 
years  ago,  and  professors  of  the  German  universities  are  still 
among  the  number  of  its  leaders.  By  now,  however,  it  has  drawn 
into  its  fold  many  professors  of  political  economy  of  all  countries 
save  France.  (Reference  may  be  made  to  the  author's  article 
"The  Economical  Schools  in  France  "  in  the  New  York  Political 
Science  Quarterly,  December,  1890.) 

The  commencement  of  this  school  is  usually  dated  by  the 
publication,  in  1854,  of  Roscher's  Treatise  of  Political  Economy. 
It  was  in  Germany,  too,  that  the  historical  school  of  Law  first  arose 
Under  the  guidance  of  Savigny. 

As  to  its  method,  the  realist  school  absolutely  rejects  the  deduc- 
tive method,  which  is  based  on  a  priori  reasoning,  on  abstractions, 
and  on  hypotheses,  and  asserts  that  the  only  way  of  arriving  at 
truth  is  by  the  patient  observation  of  facts. 

It  is  to  history  that  the  realist  school  turns  for  the  study  of  social 
and  economic  facts  ;  for  history  alone,  by  teaching  us  how  economic 
and  social  institutions  have  been  formed  and  are  being  transformed, 
can  enlighten  us  as  to  their  real  character. 

Now  social  institutions,  when  studied  from  this  historical  stand* 


28  PRINCIPLES    OF    POLITICAL    ECONOMY, 

t 

point,  are  seen  to  be  exceedingly  changeable,  varying,  indeed, 
from  nation  to  nation,  and  ceaselessly  undergoing  mutations  in 
the  very  midst  of  any  one  individual  people.  In  this  manner  the 
historical  school  claims  to  blow  to  the  winds  that  double  character 
of  universality  and  of  permanence  which  the  classical  school  used 
to  attribute  to  economic  phenomena  and  used  to  gild  with  the 
name  of  natural  laws.  We  must  therefore  cease  to  look  for  any 
general  laws  which  regulate  man  as  an  abstract  being,  but  must 
rather  seek  for  the  historical  laws  that  govern  the  relations  of  men 
living  in  a  specified  society.  Hence  the  name  sometimes  bestowed 
on  this  school,  that  of  the  "national-politico-economical"  school. 

Whilst  the  classical  school  regards  landed  property  and  the 
wages  system  as  definitive  institutions  which  arise  from  necessary 
and  general  causes,  the  historical  school  merely  looks  on  them  as 
simple  "historical  categories,"  which  spring  from  diverse  causes  and 
assume  very  variable  forms  according  to  the  country  and  to  the  age. 

As  regards  its  tendencies,  this  realistic  school  altogether  rejects 
the  principle  of  laisser  /aire  ;  in  its  opinion  economic  science  has 
a  practical  aim  to  reach ;  when  a  social  science  is  in  question,  it 
thinks  that  the  old  distinctions  between  an  "art"  and  a  "science" 
are  out  of  duty,  and  in  this  manner  resorts  to  the  conception  enter- 
tained by  the  earliest  economists  (see  page  2).  It  holds  that  we 
can  only  hope  to  modify  economic  institutions  in  the  direction 
pointed  to  us  by  history,  and  that  therefore  the  science  includes  the 
art  in  the  same  manner  as  the  past  contains  the  future.  "  What  is, 
what  will  be,  what  ought  to  be,"  are  to  this  school  inseparable  terms. 

Precisely  because  of  the  little  weight  it  allows  to  the  notion 
of  natural  law,  it  attaches  a  proportionately  greater  importance 
to  the  positive  laws  emanating  from  the  legislator,  and  beholds 
in  them  one  of  the  most  important  factors  of  social  evolution. 
To  quote  M.  De  Laveleye  {^Elernents  d^economie  politique,  page 
17),  "The  laws  with  which  political  economy  is  concerned  are  not 
the  laws  of  nature ;  they  are  those  laid  down  by  the  legislator. 
The  former  elude  the  will  of  man ;  the  latter  proceed  from  it." 
Hence  it  is  led  to  considerably  extend  the  functions  of  the  State, 


GENERAL    NOTIONS,  „  29 

and  on  this  point  does  not  in  the  least  share  the  antipathy  or  the 
distrust  felt  by  the  liberal  school.  This  tendency  has  earned  for  the 
new  school,  or  at  least  a  section  of  it,  the  name  of  State  Socialists. 

This  school  has  of  late  greatly  influenced  not  only  men's  thoughts, 
but  likewise  legislation.  Most  of  the  laws  promulgated  during  the 
last  twenty  years,  which  are  known  as  "labor  legislation,"  as  well 
as  the  powerful  movement  in  favor  of  the  international  regulation 
of  labor,  are  in  large  measure  its  work. 

It  has  certainly  rendered  great  service  to  the  science  by  broad- 
ening the  narrow,  factitious,  studiedly  simple,  and  vexatiously 
optimistic  point  of  view  at  which  the  classical  school  has  always 
remained  stationed.  It  has  conferred  on  it  a  new  life  by  reju- 
venating its  somewhat  empty  theories  with  new  materials  drawn 
from  history,  the  comparison  of  laws,  and  statistics.  This  school 
has  caused  political  economy  to  quit  that  systematic  abstention 
in  which  it  was  wont  to  enclose  itself;  and  to  the  question  men 
have  so  long  been  propounding,  "What  is  to  be  done?"  it  has 
sought  another  reply  than  a  sterile  laisser  faire. 

As  regards  the  deUcate  matter  of  State  interference,  we  thor- 
oughly agree  with  the  new  school  in  recognizing  an  historical  fact 
in  the  incessant  development  of  State  functions,  which,  perhaps,  is 
precisely  one  of  those  natural  laws  whose  very  existence  is  disputed 
by  the  school  in  question.  Like  it,  too,  we  believe  that  the  State's 
mission  is  to  develop  more  and  more  the  social  solidarity  (or  the 
cohesion  of  society)  of  which  it  is  the  living  image,  even  though 
for  the  accomplishment  of  this  end  it  may  have  to  exercise  its 
authority  and  impose  according  to  its  discretion  sacrifices  on  some 
for  the  benefit  of  others.  Too  often,  alas,  the  State  has  shown 
itself  unfit  for  the  right  exercise  of  this  high  social  function ;  for 
in  the  past  it  has  only  served  as  an  instrument  in  the  interest  of 
one  class,  and  indeed,  in  the  democratic  governments  of  to-day, 
for  the  benefit  of  one  party.  Such  a  procedure  has  thus  given 
some  weight  to  the  arguments  of  the  liberal  school.  However,  the 
education  of  States  is  gradually  progressing ;  more  rapidly,  indeed, 
than  that  of  individuals,  who  are  ceaselessly  carried  off  by  death. 


30  PRINCIPLES    OF    POLITICAL    ECONOMY. 

There  is,  therefore,  reason  to  hope  that  when  the  State  has  been 
founded  on  more  scientific  bases,  when  pohtical  economy  aids  it 
in  marking  out  its  road,  and  when  practical  questions  take  the 
place  of  sterile  political  questions,  on  that  day  the  State  will  be 
able  to  exercise  in  economics  a  more  rational  and  efficacious 
influence  than  it  has  hitherto  done. 

It  is  with  regard  to  its  method  that  this  new  school  is  the  most 
vulnerable  and  open  to  criticism.  The  result  of  its  desire  to  be 
realistic  and  descriptive  is,  that  it  appears  to  have  lost  sight  of 
the  true  character  of  the  science,  which,  in  spite  of  all  endeavors, 
must  remain  in  the  nature  of  an  abstraction. 

Chevreul,  the  French  scientist,  who  recently  died,  having  passed 
the  age  of  a  hundred  years,  used  to  say,  "  Every  fact  is  an  abstrac- 
tion." ^  Though  this  dictum  seems  a  strange  one  at  the  first  glance, 
yet  it  is  easily  understood  if  we  only  consider  that  what  we  call  a 
fact  is  previously  something  which  has  had  to  be  separated  out  of 
a  host  of  other  connected  facts,  and  for  the  observation  of  which 
abstraction  has  had  to  be  made  of  many  other  things. 

Thus,  in  scoffing  at  the  procedure  and  the  methods  of  the  de- 
ductive school,  the  new  school  exhibits  much  affectation  and  some 
ingratitude  ;  for,  in  fine,  it  still  lives  and  moves  in  the  categories 
which  were  laid  down  by  the  old  school.  It  has  not  exactly  re- 
made the  science ;  it  has  merely  informed  it  with  a  new  spirit. 
By  applying  its  attention  to  the  observation  of  facts  and  the  varia- 
tions shown  in  various  nations  and  at  various  times,  its  tendency  is 
to  fall  into  erudition,  and  to  lose  sight  of  the  general  conditions 
which  everywhere  determine  economic  phenomena.  If  it  were 
necessary  to  renounce  any  attempt  at  discovering  permanent  re- 
lations and  laws  under  the  changing  manifestations  of  phenomena, 
we  should  be  obliged  definitely  to  abandon  our  attempts  to  form 
a  science  of  political  economy ;  however  dangerous  to  the  science 
rash  hypotheses  might  be,  they  would  be  infinitely  less  serious  than 
such  a  confession  of  weakness. 

^  Or,  as  has  been  said  by  Profcssur  Edward  Caird,  '  There  is  only  One  Fact, 
and  every  i)art  of  it  taken  separately  is  an  abstraction.'  —  J.  B. 


BOOK   I. 

WEALTH    AND   VALUE. 

CHAPTER  I. 
WEALTH. 

I.    The  Desire  for  Wealth. 

To  be  rich,  in  the  popular  sense  of  the  term,  is  for  a  man  to 
have  the  means  of  obtaining  for  himself  good  food,  good  clothes, 
good  housing,  and  careful  nursing  if  he  flills  ill ;  to  be  able  to 
keep  sufficiently  warm  in  winter  and  agreeably  cool  in  summer,  to 
have  easy  means  of  access  and  of  transit  to  wherever  he  wishes 
to  go,  and  to  partake  of  all  the  pleasures  offered  by  civilized  life 
to  those  who  can  profit  by  them.  It  is,  too,  to  be  exempt  from 
the  necessity  of  working  for  a  livelihood,  to  be  free  to  do  as  he 
pleases,  and  to  follow  his  tastes  and  his  fancy.  Finally,  it  is  to  be 
released  from  all  anxiety  as  to  his  future  or  that  of  his  children. 
Wealth  considered  from  this  point  of  view  depends  on  the  quan- 
tity of  goods  that  a  man  possesses,  and  is  synonymous  with  abun- 
dance. 

But  the  word  "  wealth  "  presupposes  something  more  than  this ; 
it  indicates  a  state  of  superiority,  and  consequently  implies  ine- 
quahty  of  conditions.  It  points  out  the  privileged  position  of  a 
man  by  which  he  is  enabled  to  command  the  labor  of  a  multitude 
of  his  fellow-creatures,  or  what  comes  to  the  same  thing,  to  dis- 
pose of  the  products  of  their  labor.  "Riches  is  power,"  said 
Hobbes,  and  such,  in  truth,  is  the  etymological  meaning  of  the 


32  PRINCIPLES    OF    POLITICAL    ECONOMY. 

word  {Reich,  empire,  power).  Considered  from  this  point  of 
view  wealth  is  a  purely  relative  state,  and  depends  far  less  on  the 
quantity  of  goods  possessed  by  a  man  than  on  that  possessed  by  his 
fellows.  If  they  have  less  than  he  has,  he  is  rich  ;  if  they  have  as 
much  as  he  has,  he  is  not  rich.  It  is  clear  that  if  every  one  was 
rich,  there  would  be  no  more  rich  men. 

It  is  not  surprising,  then,  that  from  time  immemorial  wealth  has 
always  been  ardently  coveted  by  men ;  although  the  opinion  is 
permissible  that  this  desire,  now  raised  to  the  rank  of  a  passion,  is 
beginning  to  assume  a  somewhat  excessive  development  in  certain 
societies,  especially  in  those  in  which  we  live  ;  although  it  may  be 
salutary  for  a  more  austere  system  of  morality  to  strive,  hitherto 
without  much  success,  to  moderate  so  exaggerated  a  passion,  yet 
we  have  no  hesitation  in  declaring  that  this  desire  is  natural  and 
even  legitimate. 

To  proceed  :  a  distinction  must  be  drawn  between  the  motives 
which  incite  man  to  seek  wealth ;  they  are  of  two  different  kinds, 
and  correspond  to  the  two  aspects  under  which  the  idea  of  wealth 
is  presented.  Men  seek  wealth,  both  to  satisfy  their  wants  and  to 
mark  themselves  off  from  their  fellows ;  they  are  urged  in  the 
former  direction  by  the  desire  for  well-being,  in  the  latter  by  the 
desire  for  inequality. 

The  legitimacy  of  the  first  of  these  motives  can  be  the  more 
easily  established.  Man  has  the  right,  and  even  is  bound  by  the 
duty  of  trying,  to  satisfy  all  those  wants  which  lead  to  the  preser- 
vation and  development  of  his  being  in  the  broadest  sense  of  these 
words.  What  may  be  blamable  in  the  matter  is  not  so  much  the 
desire  for  wealth  as  the  means  employed  for  its  obtainal,  and 
especially  the  use  that  is  made  of  it.  If  wealth  in  this  world  were 
always  the  result  of  personal  labor,  if  it  were  always  directed 
towards  the  greatest  good  of  man,  physical,  intellectual,  and 
moral,  its  effects  would  be  ever  beneficial,  never  baneful ;  there 
would  never  be  too  much  of  it ;  nay,  there  would  never  be  enough. 

Unhappily,  it  is  far  too  certain  that  in  the  whole  world,  and  even 
in  our  modern  societies,  which  are  so  proud  of  their  knowledge 


WEALTH    AND    VALUE.  33 

and  so  vain  of  their  luxury,  the  vast  majority  of  men  do  not  pos- 
sess even  that  minimum  of  wealth  which  constitutes  daily  bread, 
far  less  that  amount  of  comfort  the  absence  of  which  always 
lowers  human  dignity.  The  unequal  distribution  of  wealth  may 
deceive  us  on  this  point ;  but  if  a  division  could  be  made,  the  mis- 
erable share  which  would  fall  to  each  would  dismay  the  observer. 
We  should  then  be  thankful  that  we  are  rather  richer  than  our 
fathers,  and  make  bold  to  hope  that  our  children  may  be  much 
richer  than  we  are.  If  the  day  comes,  as  we  must  hope,  when 
wealth  will  be  so  increased  as  to  amply  provide  for  the  material 
wants  of  all,  then  it  will  be  time  to  call  a  halt,  and  humanity  at 
large  wMl  henceforward  be  able  to  devote  its  strength  and  its  time 
to  the  pursuit  of  goods  of  a  more  noble  kind. 

The  legitimacy  of  the  second  motive  seems  to  be  more  dis- 
putable, and  it  is  fair  to  hold  that  the  desire  for  inequality  is  not  a 
beneficent  feeling.  Yet  it  hardly  appears  that  it  could  be  sup- 
pressed or  even  much  reduced  without  gravely  injuring  civilization  ; 
probably  without  it  the  source  of  wealth  would  soon  be  dried  up. 
Indeed,  for  the  multiplication  of  wealth  we  must  not  trust  only  to 
the  former  of  these  two  motives,  the  desire  for  well-being ;  this 
feeling  is  not  innate  in  man's  breast,  as  we  are  too  apt  to  suppose 
— witness  those  primitive  societies  which  live  in  eternal  poverty 
without  ever  seeking  to  emerge  therefrom.  It  is  the  desire  for 
inequality,  or,  if  you  will,  what  comes  exactly  to  the  same  thing, 
the  desire  to  rise  above  the  common  level,  which  is  the  cease- 
less goad  of  man's  natural  idleness. 

Mr.  Mallock,  an  English  author,  has  devoted  a  whole  volume, 
Social  Equality,  to  the  development  of  this  idea,  which  he  de- 
fines, perhaps  not  without  some  exaggeration,  in  the  following  for- 
mula :  "  All  productive  labor  that  rises  above  the  lowest,  is  always 
motived  by  the  desire  for  social  inequality."  —  Social  Equality ^ 
pages  35,  36. 


34  PRINCIPLES    OF    POLITICAL    ECONOMY. 

II.     The  Wants  of  Man. 

There  is  no  living  being  that  has  not  certain  wants,  were  it  only 
that  of  food,  which  must  be  satisfied  for  the  creature  to  live  and 
attain  its  ends.  The  higher  we  go  in  the  scale  of  life,  the  more 
complicated  and  sensitive  is  the  organism,  and  the  more  complex 
and  multiple  do  the  wants  become  ;  for  the  being  which  occupies 
the  summit  of  the  hierarchy,  for  man,  they  are  legion.  Could  we 
come  to  know  a  being  superior  to  man,  we  should  certainly  dis- 
cover that  he  possessed  an  infinitude  of  wants  of  which  we  in  this 
world  can  form  no  idea  whatever. 

If  the  progression  of  wants  is  so  marked  on  turning  from  lower 
to  higher  beings,  it  is  no  less  striking  on  passing  up  from  savage 
to  civilized  man.  Had  we  to  point  out  the  most  characteristic 
feature  of  that  social  state  which  is  denoted  by  the  somewhat  in- 
definite term,  civilization,  the  most  noteworthy,  perhaps,  would  be 
the  multiplicity  of  wants.  The  art  of  civilizing  a  people  consists 
in  implanting  in  it  new  wants ;  this  is  proved  by  the  example  of 
savage  communities. 

The  wants  of  humanity  are  lik^  those  of  a  child.  The  child,  at 
birth,  needs  nothing  except  a  httle  milk  and  a  warm  covering ; 
but  little  by  little  he  comes  to  require  more  varied  food,  more  com- 
plicated garments,  and,  moreover,  toys ;  each  year  arises  some  new 
want,  some  new  desire.  We,  to-day,  are  sensible  of  a  thousand 
wants  which  were  unknown  to  our  grandfathers,  relating  to  com- 
fort, hygiene,  cleanliness,  education,  travel,  social  intercourse;  and 
it  is  certain  that  our  grandchildren  will  have  further  needs.  The 
more  we  see,  the  more  we  learn,  the  more  our  curiosity  awakens, 
and  the  more,  too,  do  our  desires  increase  and  multiply.  Each  in- 
vention, each  idea  that  is  born  into  the  world,  engenders  a  whole 
generation  of  new  wants.  Doubtless,  some  of  the  number  do  not 
continue,  and  after  having  lasted  for  a  few  generations,  or  perhaps 
only  for  a  few  days,  sink  like  dead  leaves  falling  from  the  tree ; 
maybe  the  very  caprice  that  gave  them  birth  abandons  them,  as 
with  the  ephemeral  creations  of  fashion ;  maybe  a  new  and  con- 


WEALTH    AND    VALUE,  35 

flicting  want  dethrones  its  predecessor.  But  in  a  general  way, 
the  number  of  wants  which  disappear  far  from  balances  the  tale 
of  those  which  arise,  and  just  as  with  the  generations  of  men  we 
have  a  crowd  which  goes  on  multiplying  from  age  to  age. 

A  school  of  moralists  which  dates  from  a  very  high  antiquity, 
reckoning  among  its  founders  Diogenes  with  his  tub,  regards  this 
progressive  and  indefinite  multiplication  of  wants  as  a  great  evil, 
which  political  economy  should  apply  itself  to  stop.  But,  for  our 
part,  we  can  see  in  the  development  of  these  wants  nothing  more 
than  the  normal  development  of  human  beings ;  we  think  that  an 
attempt  to  restrict  the  former  would  be  to  rob  the  latter,  and  that 
for  the  suppression  of  wants  we  should  first  of  all  have  to  suppress 
ideas. 

Without  doubt,  among  these  wants,  which  are  ceaselessly  spring- 
ing up  among  the  generations  of  man,  there  are  many  which  are 
frivolous  or  even  harmful,  and  which  far  from  favoring  man's 
development  only  serve  to  retard  it ;  e.g.  the  taste  for  alcoholic 
Hquors.  But  we  must  observe  that  for  the  efficacious  eradication 
of  any  want  whatever,  the  best  means  is  to  substitute  another  one. 
Indeed,  to  combat  this  very  alccJholism,  temperance  societies  have 
found  that  the  best  mode  is  to  open  establishments  in  which  an 
attempt  is  made  to  accustom  consumers  to  drink  tea  or  coffee. 
There  is  reason  to  hope  that  in  the  future,  wken  man's  aims  are 
more  enlightened  and  his  desires  are  conformable  only  to  his  true 
nature,  he  will  be  able  to  follow  them  without  arrih-e-pensee,  and 
to  strive  to  satisfy  them  without  experiencing  remorse. 

Even  admitting  that  in  certain  cases  contentus  sua  sorte  may  be 
the  motto  of  a  philosopher,  it  should  never  be  the  watchword  of  a 
people.  Woe  to  the  races  which  are  too  easily  satisfied,  whose 
desires  do  not  stretch  beyond  the  narrow  circle  of  the  bounding 
horizon,  and  whose  only  requisites  are  a  handful  of  ripe  fruit  for 
food  and  a  nook  in  a  wall'where  they  may  sleep  shaded  from  the 
sun  !  They  will  not  be  long  in  vanishing  from  an  earth  the  capa- 
bilities of  which  they  have  not  turned  to  advantage. 

The  school  of  moralists,  of  which  we  have  just  spoken,  starts 


36  PRINCIPLES    OF    POLITICAL    ECONOMY. 

from  the  idea  that  the  fewer  wants  a  people  has,  the  more  time 
will  it  devote  to  intellectual  speculations.  But  experience  shows 
that  in  reality,  the  inverse  order  of  things  comes  to  pass,  and  that 
the  fewer  wants  that  races  have,  they  are,  in  general,  the  more  idle, 
ignorant,  and  swayed  by  the  grossest  appetites. 

It  is  easy  to  understand  in  virtue  of  what  law  the  wants  of  man 
tend  to  develop  in  this  wise.  A  want,  still  timid  and  ill-defined, 
arises  first  of  all  in  the  bosom  of  one  single  man,  or  in  the  hearts 
of  a  small  group  of  men ;  in  those,  only,  who  from  their  privileged 
position  have  already  been  able  to  amply  satisfy  the  primary 
necessities  of  life,  and  who  then  turn  their  desires  to  a  new  hori- 
zon. But  man,  before  all,  is  an  imitative  being ;  by  imitation  the 
want  is  immediately  propagated.  Like  an  epidemic  it  speeds 
from  neighbor  to  neighbor.  Every  one  feels  it,  or  fancies  he  does, 
and  applies  himself  to  find  some  means  for  satisfying  it.  In  pro- 
portion as  the  progress  of  industry  allows  the  gratification  of  this 
satisfaction  with  greater  ease  and  at  less  expense,  the  imitators 
continuously  increase  in  numbers,  and  what  was  at  first  merely  a 
caprice  of  luxury,  reserved  for  those  favored  by  fortune,  soon 
penetrates  the  lowest  strata  of  society.  This  subject  is  treated 
in  an  interesting  way  in  M.  Tarde's  book  Les  Lois  de  Vimita- 
tion,  to  which  we  have  previously  referred. 

From  another  side,  in  addition  to  having  surface  extension,  the 
want  also  gains  in  depth.  Man  is  not  only  an  imitative  being,  he 
is  also  a  being  with  habits ;  desire,  once  felt  and  regularly  satis- 
fied, gradually  becomes  fixed,  takes  root,  and  can  no  longer  be 
torn  away  without  a  painful  shock.  As  is  so  well  expressed  in 
popular  language,  it  becomes  second  nature.  At  one  time  work- 
men wore  neither  linen  nor  foot-gear,  had  neither  coffee  nor  tobacco, 
and  ate  neither  meat  nor  wheaten  bread  ;  nowadays  these  wants 
have  become  so  inveterate,  that  the  workman  who  was  unable  to 
satisfy  them  and  was  suddenly  reduced  to  the  condition  of  his 
fellows  in  the  times  of  Saint  Louis  or  Good  King  Henry  would 
certainly  die. 

If  we  add  that  a  habit  which  has  been  transmitted  through  a 


WEALTH    AND    VALUE.  37 

V 

long  series  of  generations  is  not  slow  in  becoming  fixed  by  means 
of  heredity,  and  that  the  senses  grow  more  subtle  and  more  exact- 
ing, we  shall  be  able  to  appreciate  the  despotic  power  acquired  in 
the  long  run  by  a  want  which  at  its  origin  appeared  to  be  the 
most  futile  or  the  most  insignificant. 

It  would  be  impossible  to  give  a  complete  classification  of  the 
wants  of  man,  but  most  of  them  can  be  ranked  under  these  four 
heads  :  food,  housing  (including  furniture,  heating,  and  lighting) , 
clothing,  and  ornament.  The  first  two  are  shared  by  man  with  the 
animals ;  the  last  two  are  peculiar  to  him.  The  last  of  all,  whatever 
may  be  said  as  to  it,  is  as  natural  to  man  as  the  preceding  are ;  in 
fact,  it  might  even  be  placed  before  clothing.  As  Theophile 
Gauthier  has  remarked,  the  Papuans,  who  go  about  stark  naked 
and  eat  earthworms,  hang  colored  berries  from  their  necks  and  ears, 
and  cover  their  bodies  with  tattoo-marks.  Very  nearly  all  the  wealth 
to  be  found  in  all  countries  exists  only  to  satisfy  these  material 
wants,  particularly  the  first  one,  food ;  and  this  holds  even  in 
societies  which  have  reached  a  high  pitch  of  prosperity  and  might 
be  thought  to  have  done  with  these  first  necessities  of  existence. 
[Let  the  quantity  of  nourishment  necessary  for  each  Frenchman 
be  on  the  average  ten  pence  a  day  —  by  no  means  an  exaggerated 
amount ;  this  represents,  for  the  whole  of  the  French  population,  a 
yearly  consumption  of  ^^5  60,000,000  sterling,  or  probably  more 
than  half  the  entire  production  of  France  !]  Yet  education,  the 
taste  for  the  beautiful,  the  need  of  social  intercourse  or  of  travel- 
ling from  place  to  place,  the  desire  for  always  knowing  the  latest 
news,  or  for  amusement,  nay,  for  fighting,  which  is  more  fashion- 
able than  ever,  —  all  these  call  into  existence  a  number  of  impor- 
tant articles  of  wealth  in  the  shape  of  libraries,  telegraphs,  and 
telephones,  carriages,  tramways,  omnibuses,  newspapers,  theatres, 
pictures,  music,  cannon,  and  ironclads. 


38  PRINCIPLES    OF    POLITICAL    ECONOMY. 

III.    The  Definition  of  Wealth. 

In  the  vocabulary  of  political  economy,  the  word  "  wealth  "  has 
not  altogether  the  same  meaning  as  it  has  in  popular  speech.  It 
does  not  exactly  denote  a  certain  state,  a  certain  fortune,  the  fact 
of  being  rich,  but  it  points  out  certain  things,  all  those  things  the 
possession  of  which  can  obtain  for  us  any  satisfaction  whatever, 
independently  of  any  idea  of  quantity  or  of  opulence.  In  this 
sense,  a  bit  of  bread,  a  pin,  a  farthing-piece,  is  from  the  economist's 
point  of  view  as  much  wealth  as  is  an  estate,  a  diamond  necklace, 
or  a  certificate  of  government  stock. 

The  first  condition  necessary  for  a  thing  to  be  termed  wealth  is 
that  it  should  serve  to  satisfy  some  want  or  desire,  in  other  words, 
that  we  should  Judge  it  to  be  useful;  for  utiUty  is  nothing  but  the 
correlation  we  establish  between  certain  things  and  our  wants. 

The  judgment  that  we  thus  pass  on  the  utility  of  things  may 
chance  to  be  gravely  erroneous.^  Relics  of  more  or  less  authentic- 
ity have  been  for  many  centuries,  and  to-day  even  in  some  coun- 
tries are  still  regarded  as  incomparable  wealth,  on  account  of 
certain  virtues  which  are  attributed  to  them.  Many  mineral  waters 
and  pharmaceutical  preparations  are  much  in  request,  though  their 
healing  properties  are  far  from  being  proved.  No  matter ;  whether 
useful  or  not,  the  mere  fact  of  our  judging  them  to  be  such  con- 
stitutes them  wealth. 

Generally,  however,  our  judgment  is  not  altogether  blind,  and 
our  holding  a  thing  to  be  useful  arises  from  our  having  reason  to 
believe  that  it  really  is  so,  from  our  discovery  of  some  relation 
between  its  physical  properties  and  some  one  of  our  wants.  Bread 
is  useful,  partly  because  we  have  need  of  nourishment  and  partly 
because  corn  contains  just  those  elements  which  are  specially  fit- 
ting for  our  food.  The  diamond  is  so  highly  prized  because  it  is 
in  the  nature  of  man,  as  well  as  in  that  of  some  animals,  to  expe- 
rience pleasure  on  looking  at  shining  objects,  and  the  diamond,  in 
virtue  of  its  powers  of  refraction,  which  excel  those  of  any  other 

^  i.e.  from  the  point  of  view  of  a  riper  wisdom.  — J.  B. 


WEALTH    AND    VALUE.  39 

known  substance,  has  just  this  property  of  shedding  incomparable 
beams. 

It  is  for  science  to  enUghten  our  judgments  by  instructing  us  as 
to  the  properties  of  bodies  and  the  laws  of  nature.  In  this  way, 
thanks  to  discovery  and  invention,  the  patrimony  of  humanity  is 
increased  every  day  by  some  new  conquest :  at  one  time,  out  of 
the  clay  which  constitutes  the  mud  of  our  streets,  human  industry 
makes  the  sparkling,  solid,  and  at  the  same  time  light  metal,  which 
we  call  aluminium ;  at  another,  it  converts  the  foul  waste  of  coal 
into  colors  which  are  more  splendid  than  Tyrian  purple.  Yet  the 
list  of  the  things  that  we  make  use  of  is  still  exceedingly  small,  when 
compared  with  the  immense  number  of  those  that  we  turn  to  no 
account.  Of  the  140,000  known  species  of  the  vegetable  kingdom, 
less  than  300  are  used  in  farming  ;  of  the  millions  of  species  reck- 
oned in  the  animal  kingdom,  there  are  scarcely  200  that  we  have 
turned  to  any  servdce ;  and  with  inorganic  bodies  the  proportion 
is  not  more  favorable  (De  Candolle,  Origine  des  plantes  cultivees, 
page  366).  But  the  list  of  our  riches  is  lengthened  every  day, 
and  there  is  every  reason  to  believe  that,  were  our  knowledge  per- 
fect, this  vast  world  would  not  contain  one  blade  of  grass,  one 
grain  of  sand,  in  which  we  had  not  been  able  to  discoyer  some 
measure  of  utility. 

However,  to  be  able  to  reckon  a  thing  in  the  number  of  our 
riches,  it  is  not  enough  to  know  that  it  is  useful ;  it  is  also  neces- 
sary that  we  should  be  able  to  utilize  it.  Knowledge  is  power,  as 
the  saying  goes,  but  that  is  not  always  true  ;  our  knowledge  may 
remain  in  the  purely  speculative  stage  and  not  supply  us  with  any 
practical  means  of  reaching  our  ends.  We  know  that  the  dia- 
mond is  a  crystal  of  carbon,  but  we  have  not  yet  succeeded  in 
making  diamonds  out  of  coal ;  we  know  that  in  China  or  in  Ton- 
quin  there  are  very  rich  coal  mines,  that  on  the  African  plateaux 
there  are  fertile  and  healthful  tracts  and  probably  gold  mines,  but 
for  various  reasons  neither  the  ones  nor  the  others  are  within  our 
reach,  and  we  cannot  work  them.  They  are,  therefore,  not  wealth, 
at  least  for  the  present,  any  more  than  are  the  fertile  tracts  or 


40  PRINCIPLES    OF    POLITICAL    ECONOMY. 

precious  metals  which  the  astronomer,  by  aid  of  telescope  or  spec- 
trum analysis,  might  discover  on  Mars  or  on  Venus. 

Those  primary  conditions  indicated  above  are  beyond  the  reach 
of  discussion ;  but  there  are  two  others  which  have  for  long  excited 
famous  controversies  among  the  learned,  though  fortunately  they 
are  merely  questions  as  to  words. 

The  first  question  is,  Does  the  definition  of  wealth  necessarily 
imply  the  idea  of  materiality  ?  In  the  eyes  of  all  the  older  econo- 
mists, and  of  the  greater  portion  even  now,  this  further  condition 
appeared  to  be  as  indispensable  as  the  two  primary  ones ;  and  it 
is  certain  that  in  current  speech  the  word  "  wealth  "  necessarily 
awakens  the  idea  of  a  "  thing  "  {res)  which  is  perceptible  by  our 
senses,  can  be  touched,  can  be  counted,  can  be  weighed.  We 
may  certainly  say  that  virtue,  talent,  and  savoir  /aire  are  wealth, 
but  we  shall  be  thought  to  speak  in  metaphor. 

However,  it  is  our  opinion,  though  not  formed  without  some 
hesitation,  that  this  condition  is  not  indispensable,  and  that  the 
metaphor  is  in  fact  the  reality.  Everything  that  is  of  a  nature  to 
answer  to  any  desire  felt  by  man  and  to  obtain  for  him  certain 
advantages,  everything  that  in  his  eyes  is  worth  the  trouble  of 
being  paid  for,  either  at  the  price  of  a  personal  effort  or  by  the 
sacrifice  of  a  sum  of  money,  necessarily  falls  within  the  sphere  of 
political  economy  and  constitutes  "wealth." 

The  opinion  given  by  the  physician  is  wealth  by  absolutely 
the  same  right  as  the  morphia  he  administers  to  his  patient ;  the 
instruction  that  a  professor  gives  his  pupils  is  wealth  in  exactly 
the  same  way  as  the  book  he  publishes  and  exhibits  for  sale  at 
the  bookseller's.  If  the  barber's  pole  or  shaving-dish  which  is 
exposed  as  his  sign  outside  his  door  is  regarded  as  wealth,  surely 
we  should  consider  as  wealth  of  a  like  nature  the  name  and  the 
social  standing  of  a  business  firm  or  a  banking  house. 

Besides,  if  this  terminology  be  found  to  clash  too  violently  with 
our  inherited  habits  of  speech,  nothing  prevents  us  from  restrict- 
ing the  term  "wealth  "  to  "  things"  properly  so  called,  and  to  give 
the  name  of  "  services  "  to  every  act  of  man  which  is  able  to  pro- 


♦  WEALTH    AND    VALUE.  4I 

ture  any  satisfaction  for  his  fellows,  in  a  direct  manner  and  without 
intermediate  incorporation  in  a  material  object.  However,  some 
very  recent  writers  —  e.g.  Clark,  Pantaleoni,  and  Mazzola — have 
remarked,  not  without  considerable  subtlety,  that  to  give  a  man 
any  gratification,  he  must  be  acted  on  by  means  of  his  senses,  and 
consequently  by  the  intermediation  of  some  material  object,  —  the 
sound-vibrations  of  the  air  in  motion,  the  luminous  vibrations  of 
the  ether.  Thus  the  words  of  the  lecturing  professor  would  not 
reach  us  in  a  vacuum,  nor  would  the  facial  expressions  of  the  actor 
be  visible  in  an  unlit  night.  From  this  point  of  view,  then,  we 
may  say  that  there  cannot  be  any  "  non-material  "  wealth.^ 

We  now  come  to  the  second  question,  Does  the  definition  of 
wealth  necessarily  imply  the  idea  of  value  ?  This  condition  is 
no  more  indispensable  than  the  other.  The  idea  of  value  is  not 
necessarily  bound  up  with  the  idea  of  wealth  \  for  surely  a  fertile 
soil,  a  mild  climate,  a  fine  network  of  navigable  rivers,  and  safe 
and  deep  roadsteads  are  the  earnest  of  wealth  for  a  country ;  and 
yet  they  have  no  exchange-value.  It  is  even  possible  to  establish 
an  antithesis  between  these  two  terms;  "wealth"  corresponding 
to  the  idea  of  abundance,  "value"  answering  to  the  idea  of 
scarcity.  Let  us  suppose,  for  example,  that  by  a  lucky  miracle 
worked  by  human  industry  all  products  were  to  be'  so  multiplied 
as  to  become  as  abundant  as  spring  water  or  the  sand  of  the 
shore ;  should  we  not  have  to  regard  this  marvellous  multipli- 
cation as  an  increase  of  wealth,  nay,  as  the  climax  of  wealth? 
Yet  according  to  the  above  hypothesis,  all  things,  precisely  on 
account  of  their  superabundance,  would  have  lost  all  value  ;  they 
would  have  neither  more  nor  less  value  than  that  very  spring 
water  or  those  grains  of  sand  with  which  we  just  compared  them. 

This,  however,  is  the  question  which  J.  B.  Say  thought  to  be  the 

1  This  argument  alone  would  drive  us  back  to  the  position  which  the 
author,  perhaps  too  hastily,  abandoned.  The  arguments  against  regarding 
good-will  of  a  business,  etc.,  as  wealth,  over  and  above  the  particular  things  and 
services  to  which  they  relate,  are  given  by  Dr.  Bohm-Bawerk,  in  his  Rechte 
und  Verhaltnisse  (1881).  —  J.  B. 


42  PRINCIPLES    OF    POLITICAL    ECONOMY. 

most  difficult  in  political  economy,  and  which  he  set  forth  thus : 
"  Wealth  being  made  up  of  the  value  of  things  which  are  pos- 
sessed, how  can  it  come  about  that  a  nation  will  be  the  richer  by 
lowering  the  price  that  is  asked  for  those  things?" — Cours  d'eco- 
no7nie  politique,  Part  III,  Chap.  V.  Proudhon  in  his  Contradic- 
tions econo77iiques  raised  again  the  same  questions  and  defied  "  any 
serious  economist "  to  answer  it.  This  contradiction  is  only  arbi- 
trary, and  arises  solely  from  a  certain  double  meaning  of  the  term 
"  wealth,"  of  which  we  have  already  warned  our  readers  {vide  page 
31  seq.^.  As  far  as  the  word  "wealth  "  means  satiety,  comfort,  it 
is  connected  only  with  the  idea  of  abundance,  and  is  completely 
independent  of  the  idea  of  value  in  exchange.  It  is  considered 
under  this  aspect  when  we  treat  of  a  country,  or  better  still,  of 
humanity  at  large.  But  when  "wealth"  signifies  inequality,  the 
relation  of  superiority  of  one  individual  to  another,  in  this  sense 
the  idea  of  wealth  is  inseparable  from  the  idea  of  value.  A  vine- 
yard proprietor,  for  instance,  is  rich  not  in  proportion  to  the  greater 
or  less  abundance  of  the  vintage,  but  in  proportion  to  its  greater  or 
less  degree  of  value.  If  he  were  the  only  person  who  had  grown 
wine  that  year,  his  wealth  would  be  at  its  maximum ;  but  if  wine 
was  as  plentiful  as  spring  water,  he  would  be  ruined.  Madame  de 
Sdvign^  expressed  this  most  picturesquely  when  she  wrote  from 
Grignan  (October,  1673)  :  "This  whole  place  is  bursting  with 
corn,  and  I  have  not  a  farthing.  Seated  on  a  heap  of  com  I 
shriek,  'I  am  starving.'  "^  If  we  repeat  our  previous  supposition, 
that  all  products  became  superabundant,  in  that  land  of  plenty 
there  would  clearly  be  no  more  rich  persons  ;  for  henceforward  all 
men  would  be  equal  before  the  valuclessness  of  things,  just  as 
Rothschild  and  the  beggar  are  equal  under  the  light  of  the  sun. 

We  might  get  clear  of  our  difficulty  by  being  careful  to  use  the 
word  "  goods  "  {bona)  instead  of  "  wealth  "  whenever  the  term  is 
used  in  an  absolute  sense  to  denote  abundance,  welfare,  and  to 

^  Sec  the  article  "  Abundance  "  in  Palgrave's  Dictionary  of  Political 
Economy.  —  J.  P,. 


A. 


WEALTH    AND    VALUE.  43 

reserve  the  word  "  wealth  "  for  the  cases  in  which  it  is  taken  in  its 
relative  sense,  as  denoting  a  certain  social  situation. 

Yet  it  happens  that,  as  in  practice  wealth  is  only  regarded  from 
the  point  of  view  of  the  relations  of  individuals  with  individuals, 
the  second  acceptation  of  the  term  is  by  far  the  more  widespread  ; 
hence  in  ordinary  speech  the  idea  of  wealth  is  always  associated 
with  the  idea  of  value.  This  latter,  however,  is  a  distinct  idea, 
and  now  requires  our  separate  study. 


CHAPTER  II. 
VALUE. 

I.    What  is  Value  ?  ^ 

When  we  know  that  a  thing  is  suitable  to  procure  for  us  any 
satisfaction  whatever,  it  thereupon  becomes  the  object  of  our 
desires.  But  even  of  the  things  which  are  of  a  nature  to  obtain 
for  us  certain  satisfactions,  all  are  not  equally  desired  or  equally 
desirable.  We  do  not  place  them  casually  on  the  same  footing,  but 
we  arrange  them  in  a  sort  of  hierarchy.  Some  we  prize  very  highly, 
others  we  think  of  little  worth ;  in  a  word,  we  have  preferences. 

Now,  the  order  of  these  preferences,  this  unequal  place  in  our 
esteem  which  we  attribute  to  them,  is  precisely  what  is  expressed 
by  the  word  "  value."  To  say  that  gold  has  more  value  than  silver, 
or,  more  generally,  that  gold  has  a  great  value,  simply  states  the  fact 
that  for  one  reason  or  another  (which  reason  we  shall  try  and  find 
by  and  by)  we  judge  that  gold  is  more  desirable  than  silver,  or 
more  desirable  than  any  other  object.  Value,  then,  which  is  the 
dominating  idea  in  all  political  economy,  denotes  nothing  more 
than  a  fact  which  in  itself  is  very  simple,  the  fact  that  a  thing  is 
more  or  less  desired.  Were  the  word  French,  we  should  only  have 
to  say,  "  Value  is  desirability."  It  is  much  to  be  wished  that  this 
word,  though  a  trifle  barbarous,  may  be  allowed  to  be  added  to 
the  vocabulary  of  poUtical  economy,  which  up  to  the  present  is  by 
no  means  rich. 

1  This  section  would  perhaps  have  been  clearer,  if  the  author  had  seen  his 
way  to  adopt  the  distinction  between  Subjective  and  Objective  Value  drawn 
by  the  Austrian  Economists  and  corresponding  roughly  to  the  old-fashioned 
distinction  between  Value  in  Use,  and  Value  in  Exchange.  —  J.  B. 
44 


WEALTH    AND    VALUE.  45 

But  from  this  idea,  however  simple  it  be,  some  very  important 
consequences  spring. 

Section  i.  Since  value  arises  from  desire,  it  proceeds  from  us 
rather  than  from  things ;  as  we  say  nowadays,  it  is  subjective  far 
more  than  objective.  It  is  not  attached  to  objects  as  a  quality 
which  can  be  perceived ;  it  is  born  at  the  moment  when  desire 
awakes,  and  vanishes  when  it  dies  out.  Like  a  butterfly,  desire 
flutters  from  thing  to  thing,  and  value  abides  only  where  desire  rests. 

Doubtless  if  an  article  of  wealth  is  one  of  those  which  answer 
to  the  permanent  wants  of  the  human  race,  say  corn  or  iron,  it 
will  be  able  to  maintain  its  value  throughout  the  ages ;  but  if  it  is 
one  of  those  which  only  correspond  to  those  changing  wants  that 
are  daily  turned  topsy-turvy  by  the  caprices  of  fashion  or  the  dis- 
coveries of  science,  then  its  value  is  as  ephemeral  and  fugitive  as 
the  want  which  created  it.  Dresses  that  are  no  longer  worn, 
books  that  are  no  longer  read,  pictures  that  have  ceased  to  be 
looked  at,  remedies  that  no  longer  cure,  —  how  long  the  list  would 
be  of  those  riches  which  have  lost  their  value  !  But  yet,  if  by 
chance  the  desire  of  the  collector,  perhaps  the  most  intense  of 
all  desires,  happens  to  settle  on  these  dead  riches,  they  will  receive 
a  new  lease  of  life  and  will  immediately  obtain  perhaps  a  far 
higher  value  than  they  had  in  the  course  of  their  previous  exis- 
tence. But  value  varies  not  only  at  different  times,  but  also  from 
country  to  country  and  even  from  individual  to  individual.  We  all 
know  the  proverb  de  gustibus  non  disputandum  :  let  us  add  "  and 
values  "  ;  for  they  too  depend  on  each  man's  tastes. 

Nor  is  this  all :  value  may  vary  in  each  individual  according  to 
circumstances.  A  starving  man  will  rank  food  as  the  first  in  the 
order  of  his  preferences,  and  like  Esau  will  sacrifice  a  fortune  in 
exchange  for  a  mess  of  pottage  ;  but  when  once  filled  he  will  give 
not  a  farthing  for  it. 

Yet  an  objection  presents  itself.  If  value  has  thus  a  purely 
subjective,  individual  character,  does  it  not  appear  that  each  thing 
ought  to  have  as  many  different  values  as  there  are  individuals? 
But  such  is  not  the  case ;  in  the  market  corn  is  sold  at  the  same 


46  PRINCIPLES    OF    POLITICAL    ECONOMY. 

price  for  every  one  :  the  starving  man  will  pay  neither  more  nor 
less  than  he  who  is  filled  to  repletion.  We  are  so  accustomed  to 
this  fact  that  it  seems  perfectly  natural ;  yet  it  is  somewhat  surpris- 
ing. It  is  explained  by  the  competition  which  takes  place  in  the 
same  market  between  the  sellers  and  buyers,  and  which  brings  it 
about  that  no  one,  however  strong  his  desire  may  be  for  a  thing, 
will  consent,  usually  speaking,  to  pay  more  for  it  than  his  neighbor. 
The  value  of  the  sack  of  corn  does  not  precisely  depend  on  the 
desire  any  person  may  have  for  this  particular  sack,  but  on  the 
general  desire  all  the  persons  in  the  market  may  have  for  the  sacks 
of  corn  there  on  sale.  See  for  this  matter  "The  Effects  produced 
on  Value  by  Competition." 

However,  if  we  satisfy  ourselves  with  averages  and  neglect  indi- 
vidual cases,  it  would  not  be  difficult  to  conceive  a  classification 
of  articles  of  wealth,  arranged  according  to  men's  preferences  in 
a  fixed  time  and  country ;  on  this  all  articles  of  wealth  would 
appear  in  their  order  of  value,  from  the  diamond  which  is  worth 
about  ;^20oo  a  grain  down  to  water  which  is  worth  a  fraction  of  a 
penny  a  ton.  It  is  under  this  form  that  the  idea  of  values  should 
be  represented,  and  assuredly  such  tables  would  be  very  instructive 
and  suitable  for  informing  us  as  to  the  manners  and  ideas  of 
different  races  and  different  times. 

Section  II.  It  results,  then,  from  our  definition  that  the  notion 
of  value  is  purely  relative,  consisting  as  it  does  in  a  preference 
given  to  one  thing  over  another.  It  therefore  necessarily  pre- 
supposes a  compariso7i  between  the  two  things.  It  is  a  notion  of 
the  same  class  as  size  or  weight. 

To  say  that  a  thing  is  worth  would  be  unintelligible  if  we  did 
not  add  "is  worth  more  or  kss  than  other  things  "  ;  and  when  we 
use,  without  any  addition,  the  current  phrase  that  some  object, 
say  diamond,  has  "  a  great  yalue,"  the  term  of  comparison,  though 
understood,  exists  none  the  less.  We  mean  to  say,  either  that  it 
has  a  great  value  relatively  to  the  imit  of  money,  in  which  case  it 
is  compared  with  that  specific  object  which  we  call  pieces  of 
money ;  or  that  it  takes  a  high  place  in  the  scale  of  wealth,  in 


WEALTH    AND    VALUE.  47 

which  case  it  is  compared  with  all  other  wealth  considered  col- 
lectively. Similarly,  when  we  say  that  a  body,  e.g.  platinum,  is 
very  heavy,  without  expressing  any  comparison,  we  mean  either  that 
it  represents  a  considerable  number  of  kilogrammes,  —  that  is  to 
say,  we  compare  it  with  the  weight  of  a  litre  of  water,  —  or  that  on 
making  out  the  hst  of  all  bodies  known  to  us,  it  would  take  the 
first  place  from  the  point  of  view  of  weight. 

Section  III.  It  follows,  then,  from  our  definition  that  we  ought 
never  to  speak  of  a  rise  or  fall  of  all  values  :  such  a  proposition 
would  be  meaningless.  For  if  value  is  nothing  more  than  an  order 
or  classification  established  between  articles  of  wealth,  how  is  it 
conceivable  that  all  values  can  at  one  and  the  same  time  rise  or 
descend?  In  order  that  some  may  rise  in  the  scale,  they  must 
take  the  place  of  others,  which  consequently  must  fall.  It  is  just 
as  if  the  candidates  who  are  admitted  to  the  Ecole  Polytechnique 
or  the  Ecole  Normale,  and  classed  according  to  order  of  merit, 
were  to  ask  if  they  could  not  all  at  the  same  time  have  obtained  a 
higher  place.  However,  as  we  shall  see  presently,  a  general  rise 
or  fall  of  prices  is  a  perfectly  intelligible  and  indeed  very  frequent 
phenomenon. 

II.    What  is  the  Cause  of  Value  ? 

We  have  just  stated  that  things  have  greater  or  less  value 
according  as  we  desire  them  more  or  less ;  in  fact,  that  the  order 
of  values  is  none  other  than  the  order  of  our  preferences. 

But  that  is  not  enough  :  we  should  like  to  penetrate  deeper  and 
discover  the  rationale  of  these  desires  and  preferences.  Why  do 
we  prefer  one  thing  to  another  ?  If  we  can  answer  this  question, 
we  shall  have  lighted  on  the  cause,  the  essential  element  of  value. 
Unfortunately  this  is  the  most  difficult  inquiry  to  be  met  with  in 
all  political  economy.  If  we  are  dealing  with  two  objects  which 
answer  to  the  same  want,  then  we  have  not  much  trouble  in  find- 
ing our  reply;  we  shall  certainly  prefer  the  one  which  by  virtue  of 
its  qualities  appears  the  better  fitting  to  satisfy  our  want ;  i.e.  which 
is  the  more  useful :  of  two  fruits  of  the  same  species  we  shall  choose 


48  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  more  luscious,  of  two  sheep  the  fatter,  of  two  pictures  the 
better  painted,  of  two  rooms  the  more  comfortable,  of  two  pieces 
of  land  the  more  fertile ;  in  fact,  of  any  two  commodities  whatever 
we  shall  choose  that  which  is  of  the  better  quality.  If  the  two 
objects  satisfy  the  same  want  equally  well,  then  they  must  have 
the  same  value. 

On  this  hypothesis,  then,  utility  seems  to  be  the  raison  d'etre 
of  our  preferences,  and  therefore  the  true  foundation  of  value. 

But  now  let  us  consider  two  objects  which  answer  to  different 
wants,  say  a  loaf  of  bread  and  a  hat.  How  shall  we  find  the 
reason  for  our  preferences?  The  guiding  thread  escapes  our 
grasp.  Here,  indeed,  we  have  no  longer  to  compare  two  objects, 
but  two  wants ;  but  our  wants  have  no  common  measure. 

Are  we,  then,  to  say  that  our  wants  can  be  accurately  classified 
from  the  point  of  view  of  reason,  morals,  or  hygiene  ?  that  thence 
we  prefer,  or  ought  to  prefer,  the  objects  which  correspond  to  the 
most  essential  wants?  in  fact,  just  what  is  expressed  in  popular 
parlance  every  time  anything  is  said  to  fall  under  the  category  of 
necessary,  or  useful,  or  agreeable,  or  superfluous  objects? 

Then  utility  would  still  stand  as  the  reason  for  our  preferences 
and  the  foundation  of  value,  but  only  on  condition  that  we  use 
this  word  "utility  "  in  its  common  sense  ;  i.e.  that  we  interpret  it  as 
meaning  an  object's  property  of  answering  to  some  more  or  less 
rational  and  more  or  less  legitimate  want.  We  should  then  have 
to  say  that  our  loaf  has  more  value  than  our  hat,  because  it  is 
more  essential  for  man  to  obtain  nourishment  than  to  cover  his 
head. 

But  this  conclusion  suffices  of  itself  to  prove  the  futility  of  such 
a  train  of  reasoning  ;  we  know  well  enough  that  a  loaf  is  not  worth 
more  than  a  hat,  but  that  the  opposite  is  the  case.  The  merest, 
nay,  the  most  perfunctory,  glance  at  all  the  things  which  make  up 
our  valuables  will  sufficiently  show  us  that  their  value  is  most  often 
not  in  direct,  but  far  rather  in  inverse  ratio  to  their  rational  utility. 
For  what  are  the  objects  which  fill  the  lowest  places  in  the  scale  of 
values?    Corn,  coal,  iron,  water  (if  the  last  named,  indeed,  can 


WEALTH    AND    VALUE.  49 

receive  any  value),  the  very  objects  which  answer  to  men's  most 
essential  wants  and  for  lack  of  which  they  would  be  bound  to 
perish  !  What,  then,  are  those  which  occupy  the  most  exalted 
stations  in  this  hierarchy  of  values?  Gold,  diamonds,  lace,  perhaps 
a  broken  piece  oi faience  in  some  collection,  or  an  edition  of  some 
old  book  which  no  one  has  ever  read,  or  will  ever  read ;  that  is  to 
say,  the  objects  which  serve  only  to  satisfy  our  curiosity  or  to 
flatter  our  vanity.  However,  it  might  be  rejoined  that  if  instead 
of  comparing  a  diamond  and  a  bushel  of  corn  as  particular  bodies, 
we  were  to  draw  a  comparison  between  diamonds  and  corn  as 
kinds,  our  conclusions  would  be  different.  It  is  evident  that 
though  an  individual  would  not  hesitate  to  prefer  a  diamond  to  a 
bushel  of  corn,  yet  the  human  race,  or  indeed  any  people,  were 
they  compelled  to  choose,  would  not  hesitate  to  prefer  com  to 
diamonds ;  and  as  a  matter  of  fact,  the  total  value  of  the  com  cir- 
culating in  the  world  is  far  higher  than  the  total  value  of  the  dia- 
monds. That  simply  shows  that  for  value,  just  as  for  wealth,  there 
is  a  social  or  general  point  of  view  which  differs  from  the  indi- 
vidual point  of  view.  But  it  is  this  individual  point  of  view  which 
alone  concerns  each  one  of  us ;  we  have  never  to  buy  or  sell  any 
but  concrete  objects.  The  total  value  of  corn  or  of  any  other 
commodity  in  the  world  interests  no  one  but  the  statistician. 

Let  it  not  be  said  that  matters  take  this  course  because  men  are 
senseless,  and  that  if  they  were  wise  their  preferences  would  be 
dictated  by  reason,  and  the  scale  of  values  would  coincide  with  the 
scale  of  utilities.  Firstly,  it  is  no  use  inquiring  into.what  men's 
preferences  should  be  in  this  matter ;  the  value  of  things  is  deter- 
mined by  what  men  actually  desire,  and  not  at  all  by  what  they 
ought  to  desire.  Moreover,  the  objection  is  groundless.  It  may  be 
correct  to  say  that  men  are  wrong  in  attributing  too  high  a  value 
to  trifles,  but  no  one  could  assert  that  they  err  in  ascribing  no 
value  at  all  to  a  glass  of  water ;  were  the  whole  earth  peopled 
by  none  but  wise  men,  the  value  of  water  would  certainly  be  not 
a  farthing  the  more. 

Let  us  put  our  question  again,  and  try  to  find  another  answer. 


50  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Here  are  a  loaf  and  a  garment ;  what  makes  us  prefer  one  to  the 
other?  However  little  we  may  reflect,  we  shall  not  hesitate  in 
replying,  "  It  depends  upon  circumstances."  Man's  wants  cannot 
be  placed  in  an  invariable  order  like  the  seven  prismatic  colors ; 
they  are  incessantly  changeable,  and  sometimes  one,  sometimes 
another,  comes  to  the  front.  If  we  are  hungry,  we  shall  prefer  the 
loaf;  if  we  are  well  filled,  but  feel  cold,  we  shall  choose  the  gar- 
ment. If  we  are  neither  hungry  nor  cold,  we  shall  think  of  future 
rather  than  of  present  wants,  and  shall  decide  our  action  by  the 
following  considerations.  If  our  larder  is  well  provisioned,  we 
shall  choose  the  garment ;  if  our  wardrobe  is  amply  supplied,  our 
choice  will  fall  on  the  loaf.  In  fine,  other  things  being  equal,  we 
shall  always  prefer  that  one  of  the  two  objects  with  which  we  are 
the  less  well  provided. 

Why  do  we  argue  in  this  fashion?  for  the  very  simple  reason 
that  no  one  of  our  wants  is  unlimited,  and  when  we  have  enough 
wealth  to  satisfy  it,  we  have  no  motive  for  desiring  any  more  of 
the  commodity.  Of  what  use  would  a  surplus  be  ?  We  should 
not  know  what  to  do  with  it.  Perhaps  it  may  be  said  that  we 
should  always  be  able  to  dispose  of  it,  and,  as  a  matter  of  fact, 
people  are  not  often  seen  to  refuse  any  article  of  wealth  because 
they  have  got  enough  of  it.  On  the  contrary,  we  consider  it  a 
wise  plan  always  to  accept.  True  enough  ;  but  only  when  others 
have  need  of  that  commodity  of  which  we  have  too  much,  and 
when  we  therefore  know  that  we  shall  be  able  to  dispose  of  it 
profitably.  The  circumstance  that  certain  men  are  not  sufficiently 
provided  with  this  commodity  establishes  that  it  is  desired  by 
them,  and  that  it  therefore  acquires  some  value.  But  if  it  exists 
in  such  a  quantity  that  each  man  is  sufficiently  provided  with  it, 
it  is  clear  that  no  one  will  want  more  of  it,  either  for  himself,  for 
he  would  not  know  what  to  do  with  it ;  or  to  dispose  of  it  to 
others,  for  he  would  no  longer  find  any  purchasers. 

If,  as  we  have  shown,  value  has  desire  as  its  foundation,  it  can- 
not exist  where  there  is  satiety ;  for  desire,  then,  is  also  absent. 
Each  of  man's  wants  requires  a  certain  (juantity  of  wcaltli,  but  not 


WEALTH    AND    VALUE.  51 

an  unbounded  quantity;  there  is  a  limit  to  it.  As  long  as  the 
limit  is  not  reached,  the  desire  subsists,  though  the  nearer  it  is 
approached,  the  weaker  does  the  desire  become,  and  value  sub- 
sists and  decreases  together  with  it.  As  soon  as  the  limit  is 
reached,  the  desire  is  extinguished  and  the  value  vanishes  at  the 
same  moment.  It  is  even  possible,  as  Jevons  very  subtly  remarks, 
that  when  once  this  limit  has  been  passed,  the  desire  we  have  for 
the  thing  is  converted  into  repulsion.  It  is  just  like  those  series, 
so  well  known  to  mathematicians,  which  diminish  as  far  as  zero, 
and  then  begin  to  increase  below  zero,  but  with  a  negative  value. 

Limitation  in  quantity,  or  scarcity,  comes  then  after  utility  and 
along  with  it  as  the  decisive  reason  for  our  preferences.  If  scarcity 
holds  such  a  place  in  our  decisions,  we  ought  not  to  wonder  at  it 
or  regard  it  as  the  effect  of  some  caprice  similar  to  that  of  a  col- 
lector-maniac, who  seeks  for  a  rare  article  purely  that  he  may  be 
able  to  say  that  he  is  its  only  possessor.  By  no  means  ;  if  limi- 
tation in  quantity  constitutes  the  reason  for  value,  —  that  is,  because 
it  is  itself  a  consequence  of  the  physical  and  moral  nature  of  man, 
—  its  foundation  rests  on  that  physiological  and  psychological  law 
according  to  which  every  want  is  limited.  This  doctrine  was  first 
taught  by  Condillac  in  his  fine  work  Le  Commerce  et  le  Gou- 
vernement  (1776);^  but  it  has  been  taken  up  again  and  most 
ingeniously  developed  by  Stanley  Jevons  in  his  Theory  of  Political 
Economy  ( i  S  7 1 ) . 

But  limitation  in  quantity  is  not  itself  an  absolute  fact.  There 
is  not  a  thing  in  the  world,  even  among  products  of  nature,  and 
in  still  larger  measure,  among  the  products  of  human  industry,  the 
quantity  of  which  is  so  rigorously  fixed  that  it  cannot  be  increased 
by  the  expenditure  of  some  effort.  When  we  say  that  diamonds 
are  rare,  we  do  not  mean  that  nature  has  put  into  circulation  only 
a  fixed  number  of  specimens  and  has  then  destroyed  the  mould  ; 

^  e.g.  ch.  I.  "  Abundance,  superabundance,  and  scarcity  dwell  rather  in 
jur  opinion  about  quantities  than  in  the  quantities  themselves;  but  they  dwell 
in  the  opinion,  only  because  they  are  supposed  to  dwell  in  the  quantities."  — ■ 
J.B. 


52  PRINCIPLES    OF    POLITICAL    ECONOMY. 

we  merely  mean  that  it  requires  much  trouble  or  much  luck  to  find 
more  of  them,  and  that  therefore  the  existing  (quantity  can  be 
increased  but  with  difficulty.  When  chronometers  are  said  to  be 
rare,  it  is  not  meant  that  between  the  ends  of  the  earth  there  only 
exists  a  fixed  amount  of  numbered  samples  :  an  unbounded  num- 
ber can  be  produced.  But,  as  the  construction  of  a  good  chro- 
nometer requires  considerable  time  and  special  skill,  the  quantity 
is  limited  by  the  available  time  and  labor.  It  is  not  probable  that 
in  France  there  are  fewer  trousers  than  waistcoats  ;  yet  trousers 
may  be  said  to  be  rarer  than  waistcoats.  For  as  they  require  more 
material  and  more  time  for  their  making,  the  former  of  these  gar- 
ments are  not  so  easy  to  multiply  as  the  latter,  and  for  this  very 
reason  are  generally  dearer.  The  limitation  in  quantity  or  the 
scarcity  of  any  commodity  depends,  then,  solely  on  the  greater  or 
less  difficulty  experienced  in  obtaining  it. 

It  is  easy  now  to  explain  why  air  and  water  have  no  value.  Yet 
are  they  not  especially  useful  articles  ?  Undoubtedly,  in  the  sense 
that  they  answer  to  the  most  imperious  of  wants ;  but,  however 
useful  they  may  be,  they  are  not  desiird;  for  their  abundance  is 
such  that  we  have  always  enough  of  them,  and  to  renew  our  sup- 
ply, if  we  need  air,  we  have  but  to  open  our  mouths  and  draw  in  a 
breath ;  if  water,  to  bend  over  the  brook  and  drink.  Then  who 
troubles  about  a  glass  of  water  in  such  countries  as  ours?  We 
have  always  enough  and  to  spare,  as  is  capitally  said.  For  one 
lost,  we  can  find  ten  to  replace  it.  It  is  true  that  if  we  were  in 
the  desert,  in  "  the  land  of  thirst,"  or  in  a  place  where  a  glass  of 
water  was  not  easily  procurable,  it  might  become  a  highly  desirable 
article ;  but  then,  too,  it  would  be  capable  of  acquiring  a  value 
which  might  be  said  to  be  unbounded,  and  higher  than  that  of  any 
other  object  in  the  world.  And  why  so?  precisely  because  on 
such  an  hypothesis  the  supply  of  water  would  be  found  to  be 
insufficient.  If  in  our  part  of  the  earth  water  has  generally  no 
value,  it  is  as  drinking-water,  with  regard  to  its  use  for  quenching 
the  thirst ;  for  from  that  i)oint  of  view  it  is  superabundant.  But 
when  it  is  rc(iuired  for  purposes  of  irrigation  or  for  pleasure,  or  as 


WEALTH    AND    VALUE.  53 

a  motor  force,  it  usually  has  some  value,  and  even  a  considerable 
one.  Why?  Because  for  such  uses  it  does  not  exist  in  large 
enough  quantities  to  satisfy  the  wants  of  proprietors ;  hence  it  is 
rendered  desirable  and  receives  a  value. 

In  the  same  way  we  can  explain  why  diamonds  or  fine  pearls, 
which  answer  to  such  futile  wants,  take  so  high  a  place  in  the  scale 
of  values.  It  is  because  their  quantity  is  so  very  small  that  the 
immense  majority  of  mankind  possess  none  of  them,  though  they 
desire  them  keenly  (I  speak  at  least  of  the  feminine  half  of  the 
species),  and  that  even  the  favored  owners  are  not  usually  so  well 
provided  with  them  as  not  to  be  able  to  desire  more.  That  limit- 
ing point  where  satiety  begins  and  desire  dies  is  never  reached 
with  this  kind  of  wealth.  But  if  chemistry  ever  succeeds,  as  it 
reckons  on  doing,  in  converting  carbon  into  diamonds,  then  as 
each  man  would  be  able  to  obtain  as  many  of  them  as  he  wished, 
the  desire  would  fall  to  zero  and  drag  down  the  value  in  its  fall. 
Even  if  the  existing  quantity  was  not  destined  to  be  considerably 
modified,  yet  the  mere  possibility  of  increasing  that  quantity  at 
will  would  serve  to  chill  desire  and  keep  down  value. 

To  recapitulate  :  we  can  answer,  in  the  following  manner,  the 
question,  "  What  is  the  cause  of  value?  " 

Things  have  more  or  less  of  value  according  as  we  desire  theju 
more  or  less  keenly. 

We  desire  them  more  or  less  keenly  according  as  their  quantity 
is  more  or  less  insufficient  for  our  wants. 

Their  quantity  is  more  or  less  insufficient  according  as  it  is  in 
our  power  to  multiply  them  more  or  less  easily. 

We  may  add  that  an  excellent  criterion  for  measuring  the  utility 
of  a  thing  may  be  derived  from  a  consideration  of  the  degree  of 
suffering  or  of  annoyance  that  we  should  receive  from  the  priva- 
tion of  a  small  portion  of  this  thing.  According  as  this  suffering 
is  nil  or  slight  or  intense,  the  utility  of  the  thing  in  question  will 
be  nil  or  slight  or  very  great.  Take  the  utility  of  water.  Does 
the  reader  reply  that  is  great,  nay,  incalculable  ?  By  no  means ; 
for  consider  the  suffering  that  will  be  entailed  by  the  privation  of 


54  PRINCIPLES    OF    POLITICAL    ECONOMY. 

a  glass  of  water  ;  it  is  absolutely  nothing.  The  value  of  water, 
therefore,  is  likewise  nought.  Similarly,  the  value  of  bread  can  be 
shown  to  be  very  slight. 

This  theory,  which  has  recently  become  celebrated  under  the 
name  of  final  utility  or  limited  utility,  and  which  is  taught  by 
most  economists,  e.g.  Jevons,  Walras,  and  Menger,  seems  to  have 
been  discovered  in  1854  by  Gossen,  a  German  writer,  whose  book 
on  the  subject  was  long  utterly  unknown,  or  perhaps  even  before 
him  by  Dupuit,  a  French  engineer.^ 

III.  Critical  Examination  of  the  Various  Theories  of  Value. 

Economists  have  always  sought  for  the  causes  of  value,  and 
each  school,  according  to  its  respective  tendencies,  has  fastened 
on  to  one  or  other  of  them.  Utility,  scarcity,  difficulty  of  attain- 
ment, and  labor  are  the  principal  ones  which  have  been  specially 
pointed  out  as  the  real  cause  or  causes. 

Utility  has  often  been  put  forward  as  sufficient  in  itself  to  ex- 
plain value,  and  therefore  rendering  unnecessary  an  attempt  to  find 
other  causes.  The  chief  exponents  of  this  have  been  Condillac, 
J.  B.  Say,  and  Stanley  Jevons.  To  the  obvious  objection  that 
many  very  useful  things  have  no  value,  this  school  replies  that 
utility  cannot  be  conceived  apart  from  a  certain  limitation  in 
quantity,  and  that  to  speak  mathematically,  it  is  necessarily  a 
"  function  "  of  quantity.  If  a  thing  is  in  excess,  e.g.  water,  no  por- 
tion of  it  (say  a  glass  of  water)  can  be  said  to  be  useful ;  it  is 
not  useful,  for  no  one  thinks  aught  of  it.  What  is  superabundant 
is  necessarily  superfluous,  and  what  is  superfluous  is  necessarily 
useless.  This  doctrine  comes  very  near  the  truth,  and,  indeed, 
closely  resembles  the  opinion  we  have  set  forth.  Yet  we  must 
observe  that  by  employing  the  word  "utility"  in  a  somewhat  dif- 
ferent sense  from  its  ordinary  acceptation,  and  by  attributing  to  it 

1  Gossen  was  only  one  out  of  a  number.  See  Jevons'  Political  Economy, 
Preface  and  Supplement  to  second  and  later  editions.  For  the  relation  of 
Jevons  to  the  Austrian  Economists  (who  avoid  the  use  of  Mathematics),  see 
the  Harvard  Quarterly  Journal  of  Economics,  October,  1888.  —  J.  B. 


WEALTH    AND    VALUE.  55 

many  things  it  does  not  mean,  this  doctrine  forces  language  and 
seems  to  turn  on  the  point  of  a  verbal  ambiguity. 

The  mathematical  school  —  for  instance,  M.  Walras  —  gives  the 
preference  to  scarcity;  for  here  this  school  finds  that  especial 
advantage  for  those  who  wish  to  introduce  mathematical  methods 
into  economic  science,  the  being  able  to  base  the  theory  of  value 
on  the  mathematical  idea  par  excellence,  the  idea  of  quantity. 
Scarcity  is  limitation  in  quantity,  but,  they  add,  it  also  implies 
utility ;  for  does  not  calling  a  thing  scarce  mean  that  it  is  sought 
for  and  consequently  is  useful  ?  If  it  served  no  purpose,  no  one 
would  want  it ;  and,  if  no  one  wanted  it,  it  could  not  be  said  to  be 
scarce  were  it  otherwise  unique  ;  as,  for  instance,  a  letter  written  by 
a  peasant  who  had  never  written  but  one  in  his  whole  life. 

We  must  reply,  however,  that  the  idea  of  scarcity  is  not  strong 
enough  to  stand  alone  unless  we  read  into  this  word  many  things 
it  does  not  say ;  for,  to  use  a  well-known  example,  cherries  are  no 
less  scarce  in  July  than  in  May,  but  as  they  are  not  then  early 
fruit,  i.e.  are  no  longer  desired,  their  value  is  gone. 

The  classical  school  in  England  preferred  to  choose  difficulty  of 
attainment ;  certainly  the  amount  of  difficulty  that  we  experience 
in  procuring  a  thing  is  a  condition  of  its  value,  but  it  is  by  no 
means  the  cause.  Corn  draws  its  value,  not  from  the  circumstance 
that  it  requires  long  labor  and  exhausting  work,  but  from  the  fact 
that  we  suffer  hunger  and  that  this  grain  is  especially  fitting  for 
our  nourishment.  The  amount  of  difficulty  that  we  experience  in 
producing  corn  only  acts  upon  its  value  in  the  proportion  in  which 
it  affects  our  satisfying  of  our  hunger. 

Finally,  another  school  teaches  that  labor  is  the  real  cause  of 
value.  This  theory,  which  has  been  set  forth  in  rather  varied 
forms,  has  now  some  position  in  the  science  ;  first  expounded  by 
Ricardo,  it  has  gathered  round  its  standard  economists  of  the  most 
opposite  schools  from  Bastiat  to  Karl  Marx. 

In  reality,  this  theory  does  not  deny  that  utility  —  that  is  to  say 
the  property  of  satisfying  any  human  want  or  desire  —  is  the  primor- 
dial condition  of  all  value.     Of  course  we  should  have  to  have  lost 


$6  PRINCIPLES   OF   POLITICAL   ECONOMY. 

our  senses  before  entertaining  the  idea  that  a  thing  which  is  of  no 
use  can  have  any  vahic,  whatever  amount  of  labor  it  may  have 
entailed.  But  according  to  this  school,  if  utility  is  the  condition 
of  value,  it  is  not  its  cause  or  its  measure.  The  basis  of  value, 
according  to  Ricardo,  its  substance,  according  to  Karl  Marx,  is 
man's  labor,  and  each  thing  has  more  or  less  worth  according  as 
it  has  required  more  or  less  labor. 

The  cause  of  this  theory  attracting  so  many  generous  minds  is, 
that  differing  from  the  preceding  group,' which  rests  value  on  a 
purely  natural  fact,  utility  or  scarcity,  it  grounds  value  upon  a 
moral  act,  —  labor.  Could  it  be  proved  that  the  value  of  all  our 
possessions,  e.g.  land,  is  in  proportion  to  the  labor  they  have  cost 
us,  we  might  be  justified  in  concluding  that  every  man's  property 
or  fortune  is  in  direct  ratio  to  his  labor,  and  thus  the  social  organi- 
zation would  be  firmly  seated  on  a  principle  of  justice.  Yet  this 
doctrine,  like  Joseph  Prudhomme's  legendary  sword,  may  be  used 
to  combat  existing  institutions  as  well  as  to  defend  them.  While 
the  school  of  Bastiat  employs  it  to  show  that  each  man's  fortune 
is  proportional  to  his  labor,  Karl  Marx's  followers,  on  the  other 
hand,  seek  to  prove  by  its  aid  that  the  values  possessed  by  the 
wealthy  classes  are  due  entirely  to  the  labor  of  the  workmen  who 
have  been  basely  robbed  of  them ;  thence  the  conclusion  is  drawn 
that  these  values  must  be  returned  to  those  who  have  created 
them. 

The  theory  certainly  contains  a  portion  of  the  truth.  No  one 
disputes  that  the  labor  necessary  for  the  production  of  things  has  a 
considerable  influence  on  their  value,  and  this  follows  from  the  very 
circumstance  we  sought  to  explain  in  our  analysis  of  value.  We 
agreed  that  value  ultimately  depends  on  the  greater  or  less  facility 
we  experience  in  multiplying  things  ;  now,  as  labor  is  the  principal 
factor  of  production,  it  is  clear  that  the  degree  of  facility  we  have 
in  multiplying  things  will  in  the  ultimate  analysis  depend  on  the 
amount  of  labor  they  require  for  their  production. 

But  it  follows  from  this  very  train  of  reasoning  that  labor  can 
act  on  the  value  of  things  only  indirectly,  and  purely  as  regards 


WEALTH    AND    VALUE.  57 

quantity.     Of  itself  it  has  no  influence  on  value,  and  this  is  shown 
clearly  enough  by  facts  that  can  be  noticed  every  day. 

1 .  If  the  value  of  a  thing  had  for  its  cause  or  substance  the  labor 
expended  in  its  production,  this  value  would  necessarily  have  to 
be  immutable  ;  for,  as  Bastiat  himself  grants,  "  Past  labor  is  not 
susceptible  of  increase  or  decrease."  Now  we  know,  on  the  con- 
trary, that  the  value  of  an  object  varies  constantly  and  ceaselessly ; 
it  is  evident,  then,  that  these  variations  are  absolutely  independent 
of  the  labor  of  production.  For  a  priori  reasons,  moreover,  it  is 
absurd  to  think  that  the  value  of  a  thing  can  thus  depend  on  a 
fact  which  is  over  and  done.  The  matter  is  finished,  there  is  no 
harking  back  to  it,  and  we  must  say,  like  Lady  Macbeth,  "  What 
is  done  cannot  be  undone  "  ;  let  us  speak  no  more  of  it. 

2.  If  labor  were  the  cause  of  value,  equal  values  would  always 
correspond  to  equal  labors,  and  unequal  to  unequal.  Now  every 
moment  we  see  objects  which  have  cost  the  same  amount  of  labor 
selling  at  very  different  prices  {e.g.  a  fillet  of  beef  and  the  tongue 
or  the  tail  of  the  same  ox)  ;  and  inversely,  objects  which  have 
required  far  different  amounts  of  labor  selling  at  the  same  price 
{e.g.  one  gallon  of  wine  produced  on  an  estate  which  yielded  i8o 
gallons  per  acre,  and  one  gallon  of  wine  of  the  same  quality  pro- 
duced on  an  estate  which  yields  1800  gallons  per  acre).  Ricardo 
did  not  deny  this  fact,  for  on  it  he  based  lois  famous  theory  of 
Rent  (see  below,  "  Distribution  ")  ;  but  the  explanation  he  gives 
merely  establishes  the  incontestable  fact  that  two  objects  of  the 
same  quality,  i.e.  of  the  same  utility,  have  necessarily  the  same 
value,  however  unequal  be  the  respective  amounts  of  labor  they 
have  cost. 

3.  If  labor  were  the  cause  of  value,  where  there  had  been  no 
labor  there  would  be  no  value.  Now  there  are  innumerable  things 
which  possess  a  value,  and  often  a  very  high  one,  without  having 
required  any  labor ;  such  as  a  spring  of  mineral  water  or  petro- 
leum, guano  deposited  by  sea-birds,  a  sandy  beach  in  the  south 
of  France  which  has  been  ploughed  only  by  the  wind  from  the 
open  sea  and  which  is  sold  at  a  very  high  price  for  the  plantation 


58  PRINCIPLES    OF    POLITICAL    ECONOMY. 

of  vines,  a  few  yards  of  ground  in  the  Champs-Elys^es,  etc.  Not 
do  Ricardo  and  his  school  deny  (for  the  fact  is  not  capable  of 
denial)  that  there  are  certain  objects  "  whose  value  depends  only 
on  scarcity,  since  no  labor  can  increase  their  quantity."  Yet  he 
considers  these  to  be  insignificant,  and  only  gives  as  examples 
valuable  pictures,  statues,  etc.  In  reality,  these  objects  form  an 
enormous  body  of  exceptions  and  nullify  the  rule. 

4.  Lastly,  if  labor  is  the  cause  of  value,  what  is  to  be  the  cause 
of  the  value  of  the  labor  itself?  For  labor  has  certainly  a  value  ; 
it  is  bought  and  sold,  or,  if  the  term  is  preferred,  is  hired  every 
day  at  a  certain  price.  It  is  easy  to  explain  the  value  of  labor  by 
the  value  of  its  products,  just  as  the  value  of  a  piece  of  land  is 
determined  by  the  value  of  the  crops  it  can  yield.  But  if  we 
explain  the  value  of  products  by  the  value  of  the  labor  which  has 
formed  them,  we  but  argue  in  a  circle  whence  there  is  no  exit.^ 

Ingenious  attempts  have  been  made  to  fit  in  this  theory  with  the 
various  difficulties  of  fact  which  we  have  just  pointed  out. 

Carey  says  that  the  value  of  any  object  depends,  not  precisely 
on  the  amount  of  labor  expended  in  its  production,  but  on  the 
labor  necessary  to  produce  a  similar  object ;  i.e.  the  labor  of 
reproduction. 

Bastiat  says  that  the  matter  to  be  considered  is  not  the  labor 
done  by  the  person  who  has  produced  the  object,  but  the  labor 
spared  the  would-be  acquirer.  As,  according  to  Bastiat,  the 
sparing  a  person  of  a  certain  amount  of  labor  is  to  render  him  a 
service,  the  author  of  the  Harmo7iies  proceeds  then  to  define  value 
as  the  relation  betweefi  tivo  services  exchanged,  and  to  declare  that  a 
service  rendered  is  the  cause  and  the  measure  of  value.  This  for- 
mula, in  spite  of  its  popularity  for  some  time,  is  a  pure  tautology. 
To  the  question,  "Why  has  a  diamond  a  greater  value  than  a 
pebble?"  it  answers,  "Because  when  I  am  handed  a  diamond,  a 
greater  service  is  done  me  than  when  I  am  handed  a  pebble." 

^  There  is  a  full  discussion  of  the  "  Labour  theories  of  \'alue  "  in  Ur.  Bohm- 
Bawerk's  book  on  Capilal  and  Interest,  Vol.  L  (English  translation  by 
W.  Smart,  1890),  pp.  297  seq. — J.  B. 


WEALTH    AND    VALUE.  59 

No  one  disputes  so  puerile  a  proposition,  but  it  is  enough  to 
reply,  that  if  the  service  rendered  by  the  transfer  of  a  diamond  is 
greater  than  that  rendered  by  the  transfer  of  a  mere  pebble,  it 
follows  simply  from  the  diamond  possessing  a  greater  value  than 
the  pebble.  So  we  have  only  reversed  our  position.  In  reality,  it 
is  not  the  service  rendered  by  the  person  who  yields  me  the  object 
that  determines  its  value ;  but  it  is  the  value  of  the  object  yielded 
which  determines  and  measures  the  importance  of  the  service 
rendered.  See  in  the  Revue  d^economie  politique,  May-June, 
1887,  an  examination  we  have  made  of  this  theory. 

Karl  Marx  declares  that  we  have  no  concern  with  the  individual 
labor  which  may  have  been  expended  in  producing  any  object, 
but  must  deal  with  the  social  labor,  or,  rather,  the  average  labor 
necessary  for  the  production  of  this  commodity  in  general. 

These  various  theories  cannot  be  discussed  here ;  we  shall  con- 
fine ourselves  to  remarking  that  all  these  theories  derived  from  the 
idea  of  labor  conflict  more  or  less  with  the  same  difficulties  as  the 
fundamental  theory,  and  that  they  lack  the  merit  which  it  pos- 
sessed of  satisfying  the  idea  of  justice.  We  have  agreed  that 
there  would  be  harmony  if  it  could  be  proved  that  the  value  of  an 
object  is  proportional  to  the  amount  of  effort  that  must  be  expended 
for  its  production ;  but  this  harmony  vanishes  or  becomes  very 
doubtful  if  we  content  ourselves  with  showing  that  the  value  of  an 
object  is  only  proportional  to  the  labor  necessary  for  reproducing 
a  similar  object  (as  Carey  says)  ;  or  to  the  efforts  that  must  be 
made  to  procure  a  like  object  (as  Bastiat  says)  ;  or  to  the  average 
amount  of  labor  required  for  the  industrial  production  of  this 
class  of  objects  (as  Karl  Marx  says). 

To  recapitulate  :  the  numberless  theories  which  have  been  pro- 
pounded for  the  explanation  of  the  phenomena  of  value  may  be 
divided  into  two  distinct  groups  or  tendencies. 

The  one  is  bound  up  with  the  idea  of  utility,  and  rests  value  on 
man's  wants ;  the  other  is  bound  up  with  the  idea  of  labor,  and 
rests  value  on  man's  efforts. 

The  first  is,  in  our  opinion,  the  expression  of  what  is ;  in  fact, 


60  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  value  of  things  is  proportional  to  our  wants  or  desires.  The 
second  is  the  expression  of  what  should  be  ;  in  point  of  equity  it  is 
to  be  wished  that  value  might  be  proportional  to  our  efforts  or  labor. 
It  would  prove  us  to  possess  an  unscientific  mind  if  we  were 
to  think  that  the  natural  law  of  values  can  ever  be  changed ;  but 
we  are  not  debarred  from  hoping  that  in  spite  of  or  by  means  of 
this  law  we  may  succeed  some  day  in  making  fact  more  conform- 
able with  equity  ;  that  is  to  say,  in  rendering  value  more  and 
more  proportional  to  labor. 

IV.     Variations  in  Value. 

That  imaginary  list  on  which  we  supposed  all  articles  of  wealth 
to  be  ranged  in  order  of  preference  has,  we  are  aware,  no  stability 
about  it.  The  value  of  each  thing  —  I  mean  its  place  relatively 
to  the  others  —  constantly  varies.  The  reason  for  this  is  evi- 
dent ;  for  value  springs  from  our  desires,  and  what  could  be  more 
changeable  than  they  are?  Even  granting  that  we  are  dealing 
with  some  physiological  want,  such  as  the  need  of  food,  yet,  since 
there  is  an  infinite  variety  of  objects  capable  of  satisfying  that 
want,  our  desire  can  turn  from  one  to  another,  and  can  make  all 
of  them  in  turn  ascend  or  descend  on  the  scale  of  values. 

Can  we  trace  any  general  principles  or  laws  which  regulate 
these  movements  ?  We  can ;  and  such  an  investigation  is  of  the 
greatest  interest.  If,  as  we  have  previously  said,  utility  and 
limitation  in  quantity  are  the  two  elements  of  value,  the  moving 
springs  of  our  desires,  it  follows  that,  if  both  or  one  of  these 
elements  happen  to  vary,  value  will  necessarily  vary. 

Firstly,  If  the  utility  of  a  thing  constantly  increases,  its  value 
will  increase  in  like  manner.  This  is  the  case  with  land,  whether 
a  building  site  in  town,  or  cultivable  ground  in  country,  the 
utility  of  which  increases  regularly  in  proportion  as  a  growing 
society  has  need  of  more  room  and  more  food.  Therefore  the 
value  of  ground,  except  in  temporary  crises,  is  in  a  state  of 
constant  progression. 


WEALTH    AND    VALUE.  6l 

Secondly,  When,  on  the  contrary,  the  utihty  diminishes,  other 
things  being  equal,  value  must  fall.  This  is  the  case  with  the 
precious  metals,  and  especially  with  silver,  which  daily  loses  in 
value,  not  only  because  the  more  refined  taste  of  the  present  day 
does  not  require  it  so  much  in  the  shape  of  plate  or  jewelry,  but 
mainly  because  the  improvement  in  instruments  of  credit  gradually 
impairs  its  utility  as  money. 

Thirdly,  When  the  quantity  increases,  other  things  being  equal, 
value  must  diminish.  This  is  the  case  with  manufactured  products, 
which  machinery  enables  us  to  multiply  daily  with  growing  ease. 

Fourthly,  When  the  quantity  diminishes,  other  things  being 
equal,  value  must  increase.  This  is  the  case  with  game,  which, 
after  having  formed  the  usual  food  of  man  when  societies  were  in 
their  infancy,  has  so  diminished  in  quantity,  in  consequence  of 
the  opening  up  and  the  putting  into  cultivation  of  land,  that  in  all 
civilized  countries  it  is  nowadays  merely  an  article  of  luxury 
reserved  for  the  table  of  the  rich.  The  same,  perhaps,  will  happen 
some  day  with  butchers'  meat ;  for  in  every  civilized  country  the 
same  causes  are  tending  to  restrict  more  and  more  the  amount  of 
land  devoted  to  the  pasturage  and  the  breeding  of  cattle,  and  con- 
sequently, the  quantity  of  cattle  in  proportion  to  the  population. 
Of  all  commodities,  it  is  meat  which  rises  the  most  rapidly  in  price. 

But  besides  these  variations  that  we  might  call  secular,  because 
in  the  course  of  ages  they  slowly  and  uniformly  displace  articles 
of  wealth  in  the  scale  of  values,  and  which  will  be  more  easy  to 
understand  after  we  have  studied  the  laws  of  production,  there 
is  another  class  of  variations  to  which  every  value  is  subject : 
these  might  better  be  styled  oscillations,  for  they  recur  after  short 
intervals,  sometimes  in  one  direction,  sometimes  in  another.  Ex- 
pressed in  terms  of  money,  they  can  be  read  in  the  variations  of 
the  market  rates  of  commodities  as  they  are  daily  quoted  in  the 
newspapers.  These  variations,  though  perhaps  less  interesting  for 
the  economist,  are  of  far  more  consequence  to  the  business  man 
and  the  manufacturer,  for  on  these  depend  their  profits  or  their  loss. 


62  PRINCIPLES    OF    POLITICAL    ECONOMY. 

For  instance,  fish  has  what  may  be  called  a  normal  value,  re- 
sulting on  the  one  hand  from  the  utility  of  this  food,  that  is  to 
say,  from  the  degree  of  taste  that  consumers  have  for  this  kind  of 
nourishment ;  and  on  the  other  hand  from  the  limitation  in  its 
quantity,  according  as  the  country  has  a  larger  or  smaller  coast- 
line, according  as  its  seas  are  better  or  worse  stocked  with  fish, 
and  according  as  a  larger  or  smaller  number  of  its  inhabitants 
devote  themselves  to  this  particular  fishery.  But,  over  and  above 
this  normal  value,  itself  a  variable  one,  yet  varying  but  slowly  and 
then  generally  in  the  direction  of  a  rise,  the  value  of  fish  when  in 
the  market  is  liable  to  a  host  of  temporary  variations.  Thus  on 
fast  days  in  Catholic  countries  fish  rises  in  value,  acquiring  on  such 
days  a  new  utility  on  account  of  the  decrees  of  the  Church,  which 
permit  no  other  animal  food.  Inversely,  its  value  will  fall  if  the 
haul  has  been  especially  abundant. 

These  oscillations  are  usually  said  to  be  regulated  by  the  law 
of  supply  a)id  dematid.  This  celebrated  formula  was  for  long 
regarded  as  the  fundamental  law  of  political  economy,  and  was 
employed  to  explain  any  sort  of  phenomenon.  Since  then,  how- 
ever, it  has  been  much  criticised  and  has  incurred  some  discredit. 

In  its  most  simple  sense  this  formula  means  :  the  price  of  every 
commodity  in  a  market  depends  on  the  relation  which  exists 
between  the  quantity  offered  by  the  sellers  and  the  quantity  de- 
manded by  the  buyers.  If  the  demand  is  greater  than  the  supply, 
the  price  rises ;  if  the  supply  is  greater  than  the  demand,  the 
price  falls.  In  this  sense  the  proposition  is  evident.  But,  really, 
this  formula  contains  nothing  more  than  the  two  elements  of  value 
we  are  already  acquainted  with,  viz.,  utility  and  scarcity,  regarded 
as  acting  at  a  fixed  time  and  place.  It  is  clear,  then,  that  the 
larger  or  smaller  quantity  of  goods  that  the  sellers  may  offer  in 
the  market  constitutes  what  we  have  called  scarcity,  whilst  the 
larger  or  smaller  quantity  demanded  by  the  consumers  depends 
on  the  degree  of  intensity  of  their  wants  or  desires ;  in  other 
words,  on  the  degree  of  utility  that  the  particular  commodity  may 
possess  for  them.     This  pro])osition  docs  not  throw  any  great  light 


WEALTH    AND    VALUE.  6$ 

on  the  explanation  of  phenomena,  but  it  has  the  advantage  of 
including  some  rather  complex  ideas  in  a  short  and  simple  for- 
mula. Nothing  more  than  this  must  be  sought  from  it.  People 
have  discredited  it  just  through  ascribing  to  it  a  precision  it  does 
not  admit  of. 

For  example,  it  has  been  erroneously  expressed  in  the  following 
mathematical  formula  :  "  Value  varies  in  direct  ratio  of  the  quan- 
tities demanded,  and  in  inverse  ratio  of  the  quantities  offered." 

This  means  to  say,  that  if  the  demand  is  doubled,  then,  the 
supply  remaining  the  same,  the  value  will  be  doubled ;  and  that, 
inversely,  if  the  supply  is  doubled,  then,  the  demand  remaining 
the  same,  the  value  will  be  reduced  by  half.  In  such  terms  as 
these,  the  proposition  is  absolutely  false,  as  was  long  ago  proved 
by  John  Stuart  Mill  and  by  Cournot. 

People  forget  that  though  supply  and  demand  act  on  value, 
yet  value,  in  its  turn,  reacts  on  supply  and  demand,  and  tends 
to  re-establish  that  equilibrium  between  them  which  had  been 
momentarily  disturbed.  When  demand  exceeds  supply,  value 
certainly  rises ;  but  the  very  result  of  this  rise  in  value  is  to  reduce 
demand  from  the  side  of  the  buyers,  and  to  increase  supply  from 
the  sellers ;  so  that  the  quantities  suppUed  and  demanded  are  not 
long  in  regaining  their  equality.  The  simplest  observation  is 
enough  to  prove  this.  Let  us  take  some  stock  on  the  Bourse,  — 
say  the  three  per  cents,  —  and  let  it  be  at  95.  Continually  a  cer- 
tain quantity  of  government  stock  is  offered,  and  a  certain  quantity 
demanded.  At  the  opening  of  the  Bourse,  suppose  the  stock 
demanded  to  be  double  the  figure  offered.  Who  would  be  so 
foolish  as  to  imagine  that  the  price  of  the  stock  ought  consequently 
to  be  doubled,  and  rise  to  190?  Yet  that  is  precisely  what  ought 
to  occur  if  the  above  formula  was  correct ;  but  in  reality  the  price 
of  the  stock  uTay  not  rise  in  the  least,  and  that  for  the  very  simple 
reason  that  by  far  the  larger  number  of  the  would-be  purchasers 
at  95  withdraw  when  the  price  rises.  It  is  clear  that  if  the  amount 
of  stock  demanded  diminishes  in  proportion  to  the  rise  in  price, 
at  the  same  time,  and  for  the  same  reason,  the  amount  offered 


64  PRINCIPLES    OF    POLITICAL    ECONOMY. 

increases.  A  moment,  then,  will  necessarily  come  when  the  de- 
creasing demand  and  the  growing  supply  will  become  equalized ; 
and  at  that  moment  equilibrium  will  be  re-established.  A  rise  of 
a  few  pence  is  generally  sufficient  to  bring  about  this  result. 

Inversely,  it  is  not  impossible,  in  certain  exceptional  cases,  for 
supply  and  demand  to  entail  far  more  than  proportional  variations 
in  value.  Gregory  King's  Law,  established  two  centuries  ago  by 
numerous  observations  on  the  price  of  corn  in  England,  showed 
that  the  slightest  variation  in  quantity  caused  more  than  propor- 
tional variations  in  price.  Thus,  if  the  crop  was  diminished  by 
half,  the  price  per  bushel  was  multipUed  almost  by  five. 

However,  this  law  has  now  lost  almost  all  its  importance,  in 
consequence  of  international  trade  in  cereals.  We  have  to  remark, 
indeed,  that,  thanks  to  that  system  of  exchange  which  brings 
together  in  one  market  the  produce  of  countries  situated  on  all 
the  zones,  not  only  is  the  bad  harvest  of  one  land  compensated 
for  by  the  good  harvest  of  another,  but  also  the  production  of 
corn,  instead  of  being  intermittent,  becomes  continuous  ;  for  there 
is  not  a  day  in  the  year,  so  to  speak,  on  which  harvesting  is  not 
going  on  in  some  portion  of  the  globe. 

V.    The  Effects  produced  on  Value  by  Competition. 

When  each  individual  in  a  country  is  at  liberty  to  take  the 
action  he  considers  the  most  advantageous  for  himself,  whether  as 
regards  the  choice  of  an  employment  or  the  disj>osal  of  his  goods, 
we  are  said  to  live  under  the  regime  of  cofnpetition. 

This  regime,  under  which  at  the  present  day  nearly  all  civilized 
societies  live,  exercises  a  decisive  influence  on  all  economic  phe- 
nomena, and  especially  on  value. 

As  far  as  regards  value,  competition  has  the  following  effects  :  — 

Firstly,  It  tends  to  equalize  the  values  of  all  similar  products. 

Desires  and  wants  being  different  in  the  case  of  each  man,  it 
would  follow  that  the  same  object  ought  to  have  a  particular  value 
for  each  individual;  that,  for  instance,  in  a  corn  market  there 


WEALTH    AND    VALUE.  65 

ought  to  be  as  many  different  prices  as  there  are  buyers.  But 
competition  prevents  the  accomplishment  of  such  a  result ;  in 
reality,  in  our  corn  market  there  will  be  only  one  price  for  all  the 
sacks  of  com.  Why  ?  Because  if  a  particular  one  of  the  buyers 
chanced  to  offer  for  a  particular  sack  a  price  higher  than  that 
current  in  the  market,  all  the  sellers  would  hasten  to  offer  him 
their  sacks  at  a  lower  price,  and  would  compete  with  one  another 
till  the  price  had  fallen  down  again  to  the  general  level.  Inversely, 
if  a  seller  agreed  to  dispose  of  his  sack  below  the  market  price, 
all  the  buyers  would  press  round  him  and  outbid  one  another,  till 
the  price  had  been  forced  up  again  to  the  general  level.  Stanley 
Jevons  calls  this  law,  which  states  that  there  is  never  but  one  price 
for  objects  of  the  same  quality,  the  law  of  indifference.  By  this 
he  means  that  all  the  objects  being,  according  to  the  hypothesis, 
of  the  same  quality,  buyers  have  no  motive  for  preferring  some  to 
others,  and  that  in  this  state  of  indifference  the  slightest  variation 
in  value  is  enough  to  provoke  outbiddings  in  one  direction  or 
the  other,  which  would  restore  the  equilibrium. 

Secondly,  It  tends  to  restore  the  value  of  all  products  to  a 
minimum  level,  determined  by  the  cost  of  production. 

When  we  come  to  production,  we  shall  see,  that  to  produce 
any  article  of  wealth  a  certain  quantity  of  wealth  must  necessarily 
be  consumed.  The  value  of  the  wealth  produced  is  as  a  general 
rule  higher  than  that  of  the  wealth  consumed ;  for,  if  it  were 
otherwise,  the  producer  would  incur  a  loss.  Unless,  then,  the 
unexpected  comes  to. pass,  there  will  always  be  a  difference,  or 
a  margin,  between  the  two  values ;  and  it  is  this  very  idifference 
which  constitutes  the  profits  of  the  enterprise. 

It  is  clearly  to  the  interest  of  the  producer  to  extend  this  margin 
as  much  as  possible,  by  trying  either  to  lower  the  value  of  the 
wealth  consumed  (raw  material,  wages,  etc.),  or  to  raise  the  value 
of  the  wealth  produced.  But  the  competition  of  the  producers 
acts  in  just  the  inverse  direction ;  the  buyers,  vying  with  one 
another,  each  producer  strives  to  attract  them  to  him  by  reducing 
as  much  as  possible  the  margin  between  the  cost  price  and  the 


^^  PRINCIPLES    OF    POLITICAL    ECONOMY. 

selling  price,  until  that  minimum  limit  is  reached  beneath  which 
it  would  be  no  longer  worth  while  to  produce.  There  is  a  wide- 
spread notion  that  the  cost  of  production  and  value  stand  to  one 
another  in  the  relation  of  cause  and  effect ;  in  other  words,  that 
things  possess  a  value  on  account  of  their  particular  cost  of  pro- 
duction, and  that  this  value  is  always  determined  by  this  cost  of 
production.     This  is  altogether  a  sophism. 

True  enough,  under  the  action  of  that  external  cause  which  is 
called  competition,  value  and  cost  of  production  bear  a  constant 
relation  one  to  the  other ;  but  it  is  not  correct  to  say  that  cost  of 
production  determines  the  value  of  the  product.  On  the  contrary, 
it  would  be  more  correct  to  say  that  //  is  the  value  of  the  product 
which  determines  the  cost  of  production.  Before  incurring  any 
expenses  in  the  production  of  a  thing,  every  producer  first  asks 
himself,  "What  will  be  the  value  of  the  product?"  If  he  con- 
siders that  this  value  will  be  enough  to  cover  the  expenses  and 
leave  him  a  margin  of  profit  besides,  he  ventures  on  the  enterprise. 
In  the  opposite  case,  he  refrains. 

If  he  happens  to  err  in  his  predictions,  it  will  be  so  much  the 
worse  for  him ;  and  all  the  expenses  he  may  have  incurred  will 
not  be  able  to  raise  the  value  of  the  product  a  farthing  above  the 
value  determined  by  the  law  of  supply  and  demand. 

Moreover,  it  is  a  petitio  priyicipii  to  say  that  the  cost  of  produc- 
tion is  the  cause  of  the  value  of  things.  For,  as  the  cost  of  pro- 
duction is,  as  we  have  seen,  nothing  but  the  value  of  the  wealth 
consumed  in  the  course  of  production,  such  a  train  of  argument 
would  mofely  explain  value  by  value. 

The  cost  of  production  may  greatly  vary,  not  only,  as  is  obvious, 
for  different  products,  but  also  for  products  of  the  same  sort. 
From  the  latter  circumstance  arises  an  economic  problem  which 
is  sufficiently  remarkable,  and  the  solution  of  which  is  extremely 
important. 

Let  us  consider  some  hundreds  of  sacks  of  corn  offered  for 
sale  in  a  market.  It  is  evident  that  they  have  not  all  been  pro- 
duced  under  identical  conditions.     Some  have  been  raised  by 


WEALTH    AND   VALUE.  6/ 

means  of  manuring  and  labor ;  others  have  grown  almost  sponta- 
neously on  fertile  soil.  These  hail  from  San  Francisco,  and  have 
doubled  Cape  Horn  on  their  way ;  those  come  from  the  next 
farm.  If,  then,  each  sack  was  to  have  fixed  on  a  ticket  its  own 
peculiar  cost  price,  there  would,  perhaps,  not  be  two  on  which 
the  same  price  could  be  read. 

Let  us  suppose,  for  instance,  that  these  cost  prices  ranged  from 
I o  to  20  shillings. 

Under  these  conditions  what  will  be  the  market  price  ?  will  it 
be  equal  to  the  cost  price  of  the  sack  which  cost  the  most,  or  of 
that  which  cost  the  least,  or  of  some  intermediate  sack  ?  Will  it 
be  fixed  at  20  or  10  or  15  shillings?  In  other  words,  will  the  value, 
on  this  hypothesis,  be  regulated  by  the  jyiaximiim  cost  of  produc- 
tion, or  by  the  minimum,  or  by  the  average  ?  Here  we  must  draw 
distinctions. 

If  we  are  speaking  of  products  which  cannot  be  multiplied  at 
will,  or  only  in  a  very  restricted  measure,  —  and  this  is  just  what 
occurs  with  corn,  —  the  market  price  will  have  to  be  regulated  by 
the  cost  price  of  the  sack  which  has  been  the  most  expensive  to 
produce,  20  shillings  in  our  example  ;  that  is  to  say,  the  value  is 
regulated  by  the  maximum  cost  of  production.  For  if  we  suppose, 
as  we  are  bound  to  do,  that  all  the  sacks  in  the  market  are  abso- 
lutely necessary  for  the  food-supply,  and  that  none  of  them  can 
be  dispensed  with,  we  shall  certainly  have  to  make  up  our  minds 
to  pay  a  price  high  enough  for  none  of  these  sacks  to  have  been 
produced  at  a  loss  ;  for  if  any  one  of  them  was  so  circumstanced, 
its  production  would  be  discontinued,  and  thence  there  would  be 
a  deficit  in  the  supply  of  corn. 

If,  on  the  other  hand,  we  are  speaking  of  products  which  can 
be  actually  or  virtually  multiplied  at  will,  —  e.g.  yards  of  cotton- 
stuff,  or  hundreds  of  nails, —  the  market  price  would  probably  fall, 
if  not  all  at  once,  at  any  rate  after  a  short  time,  to  the  level  of 
the  lowest  cost  price  ;  that  is  to  say,  the  value  tends  to  be  regu- 
lated by  the  minimum  cost  of  production.  In  fact,  it  will  be  to 
the  interest  of  the  producer  whose  cost  price  is  the  lowest  to  profit 


68  PRINCIPLES    OF    POLITICAL    ECONOMY. 

by  his  privileged  position  to  lower  his  prices  to  a  limit  very  neai 
to  his  cost  price,  in  order  to  undersell  his  competitors  and  extend 
his  sale  as  much  as  possible.  If  he  happens  to  be  of  sufficient 
weight  to  supply  the  market  by  himself  alone,  his  less- favored  rivals 
will  have  nothing  to  do  but  disappear :  there  is  no  further  need  of 
them. 

To  recapitulate  :  Whenever  we  are  dealing  with  a  product  which 
cannot  be  multiplied  at  will,  it  is  the  maximum  cost  of  production 
which  determines  the  market  value. 

Whenever  we  are  dealing  with  a  product  which  can  be  multiplied 
at  will,  it  is  the  minimum  cost  of  production  which  determines  the 
market  value.^ 

VI.    Whether  Competition  is  Cheapness. 

There  is  a  very  wide-spread  notion  that  competition  always  pro- 
duces cheapness,  and  monopoly  dearness.  Thus,  competition  is 
considered  by  the  public  to  be  a  power  which  is  beneficent,  demo- 
cratic, and  always  conducing  to  the  general  welfare,  whereas  monop- 
oly is  regarded  as  a  public  scourge.  Many  people  even  think  that 
all  political  economy  can  be  reduced  to  this  axiom.  Yet  it  is 
not  an  absolute  truth. 

Undoubtedly  the  ordinary  effect  of  competition,  as  we  have  seen 
in  the  preceding  chapter,  is  to  lower  the  value  of  products  to  the 
level  of  the  cost  of  production,  which  is  advantageous  for  the 
public. 

But  competition,  after  passing  a  certain  limit,  may  produce  a 
precisely  inverse  effect.  If  it  raises  up  a  number  of  producers  or 
middlemen  out  of  proportion  to  men's  wants,  —  e.g.  two  or  three 
railway  lines  where  one  would  have  sufficed,  or  a  hundred  bakers 
in  a  town  which  was  previously  content  with  ten,  —  then  the  gen- 
eral expenses  increase  in  considerable  proportions  ;  that  is  to  say, 

1  i.e.  if  (after  what  our  author  has  said  on  page  66)  it  is  right  to  say  that 
cost  determines  value  at  all.  —  J.  B. 


WEALTH    AND    VALUE.  69 

each  single  article  produced  reC[uires  for  its  production  a  larger 
consumption  of  wealth  (in  the  shape  of  wages,  raw  material,  imple- 
ments, sites,  etc.),  and,  the  cost  of  production  rising,  the  value  of 
the  product  rises  in  a  parallel  manner.^ 

This  does  not  mean  that  competition  does  not  bring  about  here, 
too,  its  usual  effect  of  maintaining  the  value  of  the  product  at  the 
level  of  the  cost  of  production,  by  reducing  profits.  On  our  pres- 
ent hypothesis,  producers  are  only  too  well  aware  that  their  profits 
are  reduced  to  the  minimum  ;  but  the  reduction  of  profits,  instead 
of  resulting  from  a  fall  in  the  selling  price,  which  would  be  advan- 
tageous for  the  public,  comes  from  a  rise  in  the  cost  price  which 
is  detrimental  to  all  concerned.  (For  the  inconveniences  of  a 
multiplicity  of  middlemen,  see  below,  "Traders,"  page  176). 

If  competition  does  not  necessarily  lead  to  cheapness,  it  follows, 
a  contrario,  that  monopoly  does  not  necessarily  produce  dearness. 
It  has  the  disadvantage,  it  is  true,  of  allowing  the  producer  who 
is  invested  with  this  particular  monopoly  to  realize  exceptional 
profits,  but  it  may  enable  him,  also,  to  reduce  his  prices,  through 
economy  in  his  general  expenses  ;  thus  a  trifling  disadvantage 
would  be  compensated  by  a  great  advantage.  The  equalization 
of  incomes  is  certainly  a  good  thing  to  aim  at,  but  economy  in 
production  is  better. 

Observe,  too,  that  it  is  altogether  erroneous  to  imagine  that  a 
producer  who  possesses  a  monopoly  has  the  power  of  fixing  prices 
according  to  his  own  will,  and  that  the  public  must  submit  tc  his 
good  pleasure.  In  reality,  the  value  of  his  products  is  determined 
by  the  same  laws  as  every  other  value,  i.e.  by  the  demand  of  the 
public.  As  this  demand,  in  obedience  to  a  constant  economic 
law,  grows  in  direct  ratio  to  the  lowering  of  prices,  it  is  for  the 
most  part  the  monopolist's  interest  to  fix  his  prices  at  a  very  low 
figure,  and  as  near  as  possible  to  the  cost  price,  in  order  to  attain 
the  greatest  possible  sale.     Such  a  course  is  usually  pursued  by 

1  Even  with  the  explanation  which  follows,  this  position  seems  paradoxical, 
and  the  views  of  Value  not  quite  consistent  with  that  of  Sect.  IV,  and  V.  — 
J.B. 


70  PRINCIPLES    OF    POLITICAL    ECONOMY. 

intelligent  producers  who  hold  a  monopoly  cither  de  Jure  or  de 
facto.  To  sell  cheaply  in  order  to  sell  largely,  and  thus  recoup 
yourself  from  the  quantity  sold,  has  become  the  favorite  motto 
of  present-day  commerce.  (For  this  question  of  monopoly  read 
Cournot's  remarkable  chapters,  either  in  his  Principes  mathetna- 
tiqiies  de  la  theorie  des  richesses  or  in  his  Revue  Sommaire  des 
doctrines  economiques,  1877.) 

Finally,  it  must  not  be  forgotten  that  in  certain  special  cases, 
—  notably,  every  time  a  monopoly  is  established  by  law,  —  the  law 
can  fix  tariffs ;  and  thus  are  obtained  the  advantages  of  large  pro- 
duction, while  the  disadvantages  of  excessive  profits  are  avoided. 
This  is  done  when  the  working  of  railway  lines  is  granted  to  one 
or  more  privileged  companies  ;  and  the  results  of  such  a  system 
are  often  far  superior  to  those  afforded  by  competition. 

Thus  it  is  very  clear  that  the  tendency  of  modern  industry  is  not 
towards  competition,  but  towards  monopoly,  a  real  monopoly  which 
is  exercised  by  powerful  companies,  which  may  either  work  on 
their  own  lines,  or  form  part  of  a  syndicate.  Trade,  transport, 
manufacture,  mines,  are  becoming  concentrated  in  the  hands  of 
large  associations,  which  are  in  their  turn  showing  a  tendency  to 
federate  as  associations  of  the  second  degree.  Of  late  years  these 
have  become  well  known  as  Cartels,  "  Trusts,"  "  Rings,"  and  so 
forth.  As  a  rule  they  are  not  favorably  regarded  by  the  public  or 
by  respective  governments,  and  they  are  often  stigmatized  as  mo- 
nopolists. This  severe  judgment  is  well  merited  when  their  only 
object  is  avowed  speculation,  but  as  a  new  form  of  industrial  organi- 
zation they  may  be  of  great  use  by  preventing  a  waste  of  produc- 
tive power,  by  making  production  more  regular,  by  keeping  up 
prices,  and  thus  warding  off  crises  and  enforced  lack  of  work. 
Still  their  action  will  render  even  more  necessary  a  certain  amount 
of  State  interference.  We  may  refer  to  Professor  Foxwell's  article 
on  Monopolies  in  the  Revue  d^economie  politique  for  1 889.^     There 

1  '  Growth  of  Monopoly,'  a  paper  read  to  the  Economic  Section  of  the 
British  Association,  7th  Sept.,  1888,  and  translated  in  the  September  number 
of  the  Revue  d'iconomie  politique  (1889),  of  which  Professor  Gidc  is  an  editor. 
-J.B. 


WEALTH    AND    VALUE.  7I 

is  also  a  tendency  to  monopolies  exercised  directly  by  the  State, 
as  in  the  case  of  the  post-office,  telegraphs,  railways,  banks  of  issue, 
and  by  municipalities  in  the  matters  of  gas  and  the  electric  light, 
omnibuses,  and  tramways. 


CHAPTER  III. 
PRICE. 

I.    How  Value  is  measured  by  Exchange. 

Many  economists  hold  it  to  be  an  indisputable  principle  that 
the  idea  of  value  cannot  be  conceived  apart  from  exchange  (Stanley 
Jevons  even  proposes  to  suppress  the  term  "value,"  and  to  replace 
it  by  "  ratio  of  exchange  "). 

Our  analysis,  on  the  contrary,  proves  that  the  idea  of  value  pre- 
cedes exchange,  both  ii^  order  of  time  and  in  order  of  importance. 
The  idea  of  value  means  nothing  more  than  a  preference  granted 
one  thing  over  another,  a  comparison,  the  weighing  of  two  desires. 
The  idea,  then,  is  not  necessarily  bound  up  with  exchange.  Rob- 
inson Crusoe  had  his  preferences,  but  I  confess  that  they  were  in 
the  latent  state,  and  that  the  conditions  of  his  isolated  existence 
were  not  suitable  to  reveal  them  to  others,  or  even  to  himself.  If 
he  had  been  asked  to  point  them  out,  and  to  class  the  articles  of 
wealth  composing  his  modest  property  according  to  the  values 
he  ascribed  to  them,  he  would  have  found  the  task  embarrassing. 
At  the  most,  he  would  have  been  able  to  class  them  roughly  in  two 
or  three  groups,  according  as  they  corresponded  to  more  or  less 
essential  wants.  Yet  we  can  imagine  some  occasion  which  might 
cause  this  confused  and  indistinct  notion  of  value  to  rise  suddenly 
out  of  his  inner  consciousness,  and  compel  it  to  take  a  definite 
shape.  Such  an  occasion,  for  instance,  arose  even  in  the  first  few 
days  after  his  landing.  When  he  had  to  rescue  each  article  of 
wealth  singly  from  the  ship,  which  was  on  the  point  of  sinking  (for 
the  storm  did  not  leave  him  time  to  save  all,  but  only  enough  to 
rescue  some  of  them),  he  must  have  been  obliged  to  make  a  choice 
and  determine  which  one  he  preferred  to  save  first.     The  order  in 


WEALTH    AND    VALUE.  73 

which  he  successively  brought  them  to  land,  perfectly  showed  the 
order  of  his  preferences,  and  consequently,  too,  the  respective 
values  he  ascribed  to  them. 

Let  us  confess  that  in  reality  it  is  almost  solely  exchange  which 
causes  the  idea  of  value  to  rise  from  the  inner  consciousness  in 
which,  so  to  speak,  it  was  slumbering,  which  determines  it  and 
measures  it.  In  every  exchange,  and  in  present-day  societies  ex- 
changes are  innumerable,  two  articles  of  wealth  are  laid  side  by 
side,  and  each  exchanger  weighs  in  his  mind  the  article  he  must 
give  up  and  the  article  he  desires  to  acquire.  Though  this  is  not 
the  place  for  us  to  discuss  exchange,  —  for  we  shall  find  it  later  on 
in  dealing  with  the  organization  of  production  of  which  it  is  one  of 
the  principal  springs,  —  yet  we  ought  to  show  in  what  way  exchange 
determines  and  measures  value.  As  we  know,  the  value  of  a  thing 
is  nothing  but  the  more  or  less  keen  desire  with  which  it  inspires 
us.  But  it  may  be  asked.  How  are  desires  to  be  measured  ?  Just 
like  any  other  force,  —  by  their  effects.  Now  we  know  that  each 
party  to  an  exchange  is  called  upon  to  make  some  sacrifice  for  the 
satisfaction  of  his  desire ;  he  must  give  up  a  certain  quantity  of 
the  wealth  he  possesses  in  order  to  attain  what  he  covets.  Clearly, 
the  extent  of  the  sacrifice  he  is  disposed  to  make  can  serve  to 
measure  the  intensity  of  his  desire.  The  exchange  of  ten  sheep 
for  one  ox  proves  that  men,  for  one  reason  or  another,  consider 
an  ox  to  be  ten  times  more  desirable  than  a  sheep. 

The  keener  the  desire  with  which  an  object  inspires  us,  the  more 
distant  will  be  the  limit  at  which  we  shall  consent  to  part  with  it. 
The  higher  the  place  it  holds  in  the  order  of  our  preferences,  the 
greater  will  be  the  quantity  of  any  other  article  that  must  be 
offered  us  in  order  to  arouse  in  our  minds  a  desire  opposite  in 
direction  and  equal  in  intensity,  and  to  make  the  scale  turn  to 
the  side  of  the  latter  desire.  The  expression,  then,  is  perfectly 
correct,  that  "  the  value  of  a  thing  is  determined  by  the  quantity 
of  other  things  for  which  it  can  be  exchanged  "  ;  or,  more  briefly, 
that  the  value  of  a  thing  is  determined  by  its  purchasing  power. 
But  we  must  not  say,  as  is  too  often  done,  that  it  is  the  purchas- 


74  PRINCIPLES    OF    POLITICAL    ECONOMY. 

ing  power  which  constitutes  value.  Value  is  constituted  by  our 
preferences  alone.  The  purchasing  power  is  only  an  effect  of 
value,  just  as  the  power  of  attraction  of  an  electro-magnet  is 
merely  the  effect  of  the  current  which  penetrates  it. 

If,  then,  in  exchange  for  an  ox  I  can  have  8,  lo,  or  12  sheep, 
I  can  say  that  the  value  of  an  ox  is  8,  10,  or  12  times  greater  than 
that  of  a  sheep;  or,  inversely,  that  the  value  of  a  sheep  is  8,  10, 
or  12  times  smaller  than  that  of  an  ox.  This  can  be  expressed 
thus :  "  The  respective  values  of  any  two  commodities  are  in 
inverse  ratio  to  the  quantities  exchanged."  The  more  of  a  thing 
that  has  to  be  given  up,  the  less  is  it  worth ;  the  less  of  it  that 
has  to  be  given  in  exchange  for  another  thing,  the  more  is  it 
worth.  It  is  just  as  in  weighing.  When  the  balance  is  in  equi- 
librium, the  weights  of  the  objects  can  be  said  to  be  in  inverse 
ratio  to  the  quantities  weighed.  If  we  have  to  put  ten  sheep  into 
one  scale  to  balance  one  ox  in  the  other,  that  is  because  the 
weight  of  a  sheep  is  only  the  tenth  of  the  weight  of  an  ox. 

II.    On  the  Choice  of  a  Common  Measure  of  Values. 

To  obtain  a  clear  idea  of  size,  weight,  value,  and  all  other 
quantitative  notions,  it  is  not  enough  to  compare  objects  two  at  a 
time,  as  we  have  just  done ;  we  must  compare  all  things  with  one 
specific  object,  which  shall  always  be  the  same ;  we  need  one 
single  term  of  comparison;  in  a  word,  we  require  a  common 
measure.  For  measuring  lengths,  the  term  of  comparison  chosen 
has  been  some  part  of  the  human  body,  such  as  a  foot,  a  thumb 
(inch),  or  a  forearm's  length  (cubit),  or  a  specific  fraction  of 
the  circumference  of  the  globe.  For  measuring  weights,  the  term 
of  comparison  chosen  in  the  metric  system  has  been  a  fixed 
weight  of  distilled  water.  For  measuring  value  we  must  certainly 
take  as  our  term  of  comparison  the  value  of  some  object  or  other ; 
but  which  are  we  to  choose  ? 

It  is  a  remarkable  fact  that  nations  have  almost  unanimously 
agreed  in  choosing  as  their  measure  of  values,  as  their  standard, 


WEALTH    AND    VALUE.  75 

the  value  of  the  precious  metals,  gold,  silver,  copper,  but  especially 
those  of  the  first  two.  They  have  all  made  use  of  a  little  ingot  of 
gold  or  silver,  to  which  they  have  given  the  name  of  franc,  pound 
sterling,  mark,  dollar,  rouble,  etc.  For  measuring  the  value  of 
any  object  it  is  compared  with  the  value  of  that  small  weight  of 
gold  or  silver  which  serves  as  the  unit  of  money ;  that  is  to  say, 
we  try  to  find  how  many  of  these  tiny  ingots  must  be  given  up  for 
us  to  acquire  the  commodity  in  question.  If,  for  instance,  ten  are 
needed,  we  say  that  the  commodity  is  worth  ten  francs,  or  ten 
dollars,  etc. 

Why  have  the  precious  metals  been  taken  as  the  common 
measure  of  values?  Because,  as  they  had  already  been  chosen, 
on  account  of  some  remarkable  properties,  to  act  as  instruments 
of  exchange  (for  the  reasons  which  have  caused  the  precious 
metals  to  be  chosen  as  instruments  of  exchange,  see  pages 
186-187),  and  as  exchange  is,  as  we  have  shown,  the  very 
transaction  which  serves  to  measure  values,  the  precious  rrietals 
were  naturally  marked  out  to  fulfil  this  high  function.  Yet  these 
two  functions,  although  always  confounded  in  practice,  are  theo- 
retically quite  distinct,  and  could,  indeed,  if  we  wished,  be  per- 
fectly well  separated  (see  Stanley  Jevons  on  Money).  For 
instance,  the  coUectivists,  in  the  social  organization  which  they 
are  sketching  out,  propose  to  suppress  exchange  and  consequently 
the  instrument  of  exchange,  but  they  never  dream  of  suppressing 
the  measure  of  values ;  on  the  contrary,  they  propose  a  certain 
measure  of  values  which  would  consist  of  labor  notes.  Inasmuch 
as  these  two  functions  of  money  are  perfectly  distinct,  we  have 
thought  it  right  to  discuss  them  in  two  different  parts  of  this  work, 
and,  though  we  have  been  blamed  for  this  separation,  we  have 
thought  it  right  to  retain  it  as  a  perfectly  logical  one. 

However,  it  is  right  to  recognize  that  though  the  precious 
metals  are  far  better  suited,  by  their  natural  properties,  to  serve 
as  instruments  of  exchange  than  as  a  measure  of  values,  yet  they 
possess  two  special  properties  which  enable   them  to  fulfil  this 


76  PRINCIPLES    OF    POLITICAL    ECONOMY. 

second  function  in  a  manner  which,  if  not  perfect,  is  at  least 
superior  to  the  use  of  any  other  imaginable  measure  of  value. 

These  two  properties  are,  firstly,  their  very  great  facility  of 
transport;  secondly,  their  almost  indefinite  durability.  Thanks  to 
the  first  of  these  two  properties,  the  value  of  the  precious  metals 
is,  of  all  values,  that  which  fluctuates  least  from  place  to  place ; 
thanks  to  the  second,  that  which  fluctuates  least  from  year  to 
year.  It  is  this  double  invariability  (relatively  speaking)  in  space 
and  in  time  which  is  the  essential  condition  of  every  common 
measure. 

If  the  difficulty  of  transport  could  be  altogether  overcome  in 
the  case  of  any  one  commodity,  and  if  the  gift  of  ubiquity  could 
be  granted  it,  the  result  would  be  that  its  value  would  be  practi- 
cally the  same  in  all  places.  Let  its  value  be  supposed  to  be 
less  high  in  one  part  of  the  world  than  in  another ;  then  men 
would  soon  come  to  seek  it  at  this  first  place  in  order  to  transport  it 
to  the  second  ;  and,  as  by  our  hypothesis,  the  carriage  would  present 
no  difficulty  and  require  no  expense,  the  slightest  difference  in 
value  would  be  enough  to  make  the  enterprise  a  profitable  one. 
The  equiUbrium,  if  we  suppose  it  to  have  been  broken,  would  then 
be  instantaneously  re-established,  just  as  the  level  is  instantly 
restored  in  the  case  of  a  liquid  whose  molecules  are  perfectly 
fluid. 

Now,  the  precious  metals  being  of  all  commodities,  except 
precious  stones,  those  which  have  the  greatest  value  in  the  small- 
est volume,  they  are  also  those  whose  carriage  is  the  easiest,  and 
whose  value,  therefore,  will  the  most  rapidly  recover  its  normal 
level.  For  one  per  cent  of  its  value,  freight  and  insurance  in- 
cluded, a  mass  of  gold  or  of  silver  can  be  conveyed  from  one 
end  of  the  world  to  the  other,  whilst  the  same  weight  of  corn 
would  have  to  pay,  according  to  circumstances,  20,  30,  or  even 
50  per  cent  of  its  value.  It  might  seem  to  follow  from  this,  that 
save  for  this  one  per  cent,  the  value  of  the  precious  metals  would 
be  the  same  in  all  parts  of  the  world  :  yet  such  a  conclusion 
would  be  considerably  too  broad  ;  for  it  is  certain  that  the  value 


WEALTH    AND    VALUE. 


77 


of  the  precious  metals  is  not  the  same  everywhere,  and  that  in 
particular  it  is  more  depreciated  in  the  places  where  they  are 
found  and  worked,  i.e.  in  mining  countries  (a  fact  that  explains 
the  very  high  prices  prevalent  in  those  districts)  ;  nevertheless  we 
may  say  that  the  value  of  these  metals  satisfies  well  enough  the 
first  condition,  viz.,  invariability  in  space. 

It  complies  far  less  satisfactorily  with  the  second  condition,  in- 
variability in  time  ;  yet  even  from  this  point  of  view  the  precious 
metals  are  superior  to  most  other  commodities  for  the  second 
reason  we  have  given,  namely,  their  very  great  durability. 

The  principal  cause  of  the  value  of  an  object  fluctuating  from 
one  epoch  to  another  is  the  variation  in  its  quantity.  If  we 
imagine  a  product  to  be  of  such  a  nature  that  its  quantity  is  liable 
to  vary  from  zero  up  to  a  very  considerable  figure,  the  variations 
in  its  value  will  be  extreme.  This  is  the  case  with  corn.  Before 
harvest  the  granaries  may  be  absolutely  empty ;  after  harvest,  they 
will  be  full,  and  the  difference  between  a  good  and  a  bad  year  may 
be  immense.  Hence,  too,  there  are  enormous  variations  in  the 
value  of  this  article,  and  they  would  be  still  greater,  were  it  not 
that  facility  of  carriage  and  international  trade  brought  about  a 
sort  of  equilibrium  in  production  (see  above,  page  64).  But 
because  of  their  durability,  which  enables  the  same  particles  of 
metal,  coined  and  recoined  over  and  over  again,  to  pass  down  the 
ages,  the  precious  metals  possess  quite  other  characteristics. 
They  accumulate  little  by  little  into  a  huge  mass,  into  which  the 
annual  production  pours  as  if  into  a  reservoir  which  is  continu- 
ously growing,  and  in  which,  therefore,  accidental  fluctuations 
become  of  smaller  and  smaller  proportionate  amount  and  impor- 
tance. 

In  a  headlong  torrent  the  slightest  increases  in  volume  are 
manifested  by  enormous  changes  of  level,  but  the  level  of  Lake 
Geneva  is  only  raised  in  imperceptible  proportions  even  by  the 
greatest  swellings  of  the  Rhone.  The  same  holds  with  values. 
Let  the  corn  crop  for  one  particular  year  be  doubled  throughout 
the  whole  world.     Then,  as  the   stock  is   likewise  doubled,  the 


78  PRINCIPLES    OF    POLITICAL    ECONOMY. 

deprccintion  in  prices  will  be  terrible.  But  let  the  output  of  gold 
or  silver  mines  happen  to  double  during  one  year;  then,  as  this 
output  does  not,  at  the  most,  represent  more  than  two  or  three 
per  cent  of  the  existing  stock,  the  effect  produced  will  be  but 
trifling. 

Yet  these  variations  end  by  being  very  perceptible  in  the  long 
run ;  for  at  the  rate  of  two  or  three  per  cent  per  annum,  the  stock 
would  become  doubled  in  twenty-four  or  thirty-six  years.  If, 
then,  the  value  of  the  precious  metals  offers  substantial  enough 
guarant  es  of  stability  in  time,  when  short  periods  only  are  under 
consideration,  it  altogether  fails  in  this  respect  when  long  periods 
of  time  are  included,  say  twenty  or  twenty-five  years,  not  to  speak 
of  several  centuries.  In  this  regard,  then,  our  proposed  measure 
of  value  is  extremely  defective. 

Could  a  better  one  be  found  ?  Well,  several  have  been  pro- 
posed as  such.  Here  are  a  few  of  the  most  noteworthy :  the 
value  of  corn,  or  the  wages  for  a  day's  labor ;  again,  in  quite 
another  order  of  thought,  it  has  been  proposed  to  measure  the 
value  of  things  by  the  number  of  hours  of  labor  necessary  for  their 
production.     Let  us  discuss  the  respective  merits  of  each  of  these. 

Firstly,  the  value  of  corn.  On  first  thoughts  this  is  a  most 
astonishing  choice ;  for  if  we  consider  the  value  of  this  commodity 
in  different  places  or  at  different  times,  we  find  not  only  that  it  is 
not  invariable,  but  also  that  there  are  few  values  whose  fluctuations 
are  more  marked.  At  the  same  moment  a  bushel  of  corn  may 
be  sold  for  ;^3  \os.  in  France,  and  for  f[^\  or  30  shillings  in  some 
of  the  Western  States  of  America.  According  as  the  year  is  good 
or  bad,  the  value  of  corn  may  also  vary  in  enormous  proportions, 
though  these  variations  may  have  been  diminished  by  the  facility 
of  exchange. 

But  it  is  replied  that,  though  the  value  of  corn  is  incompar- 
ably more  variable  than  that  of  the  precious  metals,  when  only 
.short  spaces  of  time  are  considered,  yet  i:  far  more  stable  when 
we  extend  our-  observation  to  long  periods.  Throughout  its 
sharp  and  numerous  oscillations  the  value  of  corn  would  appear 


WEALTH    AND    VALUE.  79 

to  tend  always  to  remain  equal  to  itself;  and  these  would  seem  to 
be  the  reasons  for  such  a  curious  property. 

I,  Say  its  supporters,  the  utiUty  of  corn  may  be  regarded  as 
constant ;  for,  on  the  average,  does  not  a  man  always  require 
the  same  quantity  of  corn  as  food,  to-day  as  yesterday,  to-morrow 
as  to-day?  Corn,  then,  answers  to  a  want  which  is  constant  and 
always  equal  to  itself,  provided  that  man's  physical  constitution 
does  not  undergo  radical  modifications.  Again,  its  scarcity,  that  is 
to  say,  the  relation  between  the  quantity  produced  and  the  quan- 
tity demanded,  should  equally  be  regarded  as  constant  from  one 
century  to  another.  That  quantity  of  com  is  and  will  always  be  pro- 
duced which  is  necessary  to  support  the  inhabitants  of  a  country ; 
for  beneath  that  limit  they  would  die  of  hunger :  but  no  greater 
quantity  will  be  produced,  for  above  that  limit  it  would  be  super- 
fluous, and  superabundance  would  entail  an  immense  depreciation. 
No  doubt  this  equilibrium  may  be  disturbed  by  the  vicissitudes  of 
the  seasons,  but  the  more  violent  the  displacement,  the  stronger 
is  its  tendency  to  recovery. 

Now  if  utility  and  scarcity,  the  two  essential  elements  of  the 
value  of  corn,  as  of  every  other  value,  can  be  regarded  as  con- 
stants, the  value  of  corn  itself  might  be  regarded  as  a  fixed  point 
whence  we  might  measure  all  other  values. 

Unfortunately,  these  are  mere  abstractions.  It  is  not  a  fact  that 
men  nowadays  eat  the  same  quantity  of  corn  as  their  forefathers 
did,  at  least,  if  we  speak  of  wheat ;  nay,  they  eat  far  more ; 
for  in  the  last  century  they  mainly  Hved  on  cereals  of  inferior 
quality.  On  the  other  hand,  it  is  possible  that  in  the  future,  if  the 
consumption  of  meat  or  vegetables  increases,  the  consumption  of 
com  may  decrease.  Even  admitting  that  the  utility  of  corn  might 
remain  constant,  there  would  still  be  an  element  in  its  value  which 
would  continue  to  be  variable  ;  namely,  the  greater  or  less  ease 
with  which  we  obtain  it,  whether  directly  by  means  of  agriculture, 
or  indirectly  through  international  trade. 

Nevertheless,  from  the  point  of  view  of  its  fluctuations  in  value, 
com  certainly  possesses  qualities  and  defects  which  are  exactly 


80  PRINCIPLES    OF    POLITICAL   ECONOMY. 

inverse  to  those  characteristic  of  the  precious  metals.  For  this 
reason  it  may  be  used,  side  by  side  with  them,  as  a  valuable 
enough  means  of  checking  them. 

2.  The  value  of  a  day's  labor,  choosing  the  least  remunera- 
tive labor.  This  theory  rests  on  a  double  idea :  on  the  one 
hand,  that  the  essential  and  indispensable  wants  of  human  exist- 
ence are  the  same  for  each  man ;  on  the  other,  that  in  every 
society  there  is  a  certain  class  of  men  who  from  their  wages  can 
only  just  provide  for  these  primal  necessaries  of  life  (see  Book  IV, 
"The  Law  of  Brass").  If  these  elementary  wants  represent  a 
"  constant,"  the  least  amount  of  wages  required  to  satisfy  them 
should  also  represent  a  constant  value. 

But  this  hypothesis  is  even  more  chimerical  than  the  preceding 
one.  In  the  first  place,  it  is  not  absolutely  proved  that  in  every 
society  there  is  inevitably  a  part  of  the  population  which  is  reduced 
to  the  bare  necessaries  of  life ;  in  any  case  it  is  clear  that  these 
bare  necessaries  are  not  the  same  for  the  serf  of  the  twelfth  cen- 
tury as  for  the  French  peasant  of  to-day,  the  same  for  the  Ameri- 
can laborer  as  for  the  Chinese  coolie.  The  one  would  live  and 
have  enough  to  spare  on  what  would  but  leave  the  other  to  die  of 
hunger. 

3.  The  quantity  of  labor.  This  doctrine,  which  was  set  forth 
by  Adam  Smith  and  Ricardo,  has  been  powerfully  developed  by 
Karl  Marx. 

We  must  not  confound  this  theory  with  the  preceding  one,  as 
too  many  economists  have  done,  with  Adam  Smith,  perhaps,  at 
their  head.  It  is  one  thing  to  take  as  the  measure  of  the  value  of 
objects  the  value  of  labor,  the  price  of  manual  labor,  wages,  in  a 
word,  the  proposal  we  were  .discussing  just  above.  It  is  quite 
another  thing  to  take  as  the  measure  of  their  value  the  quantity 
of  labor,  the  pains  taken  in  producing  them,  as  is  the  proposal 
now  before  us. 

The  originality  of  this  theory  lies  in  its  attempting  to  measure 
values  not  by  another  value,  but  by  a  quantity  of  quite  a  different 
order;   this  method,  then,  is  radically  different   from   those  we 


WEALTH    AND    VALUE.  8l 

have  heretofore  considered.  Its  principle  is,  that  between  the 
value  of  any  object  and  the  quantity  of  labor  devoted  to  its  pro- 
duction there  is  a  constant  relation,  so  that  the  one  can  be  meas- 
ured by  the  other.  If,  then,  we  ask  how  are  we  to  measure  the 
quantity  of  labor  itself,  the  reply  is  :  By  its  duration,  by  the 
number  of  days  or  hours  devoted  on  an  average  to  this  particular 
labor.     Thus  we  light  on  a  very  simple  common  measure. 

This  theory  is  naturally  connected  with  the  doctrine  which 
regards  labor  as  the  cause  of  value,  a  doctrine  we  have  already 
rejected.  But  still  the  present  theory  is  not,  as  is  generally 
believed,  a  necessary  consequence  of  the  former  doctrine.  While 
rejecting  the  idea  that  labor  is  the  cause  of  value,  we  might  still 
allow  that  it  can  serve  as  its  measure.  The  theory  requires  the 
following  modifications. 

It  can  correctly  be  asserted  that  men  take  the  more  pains  in 
producing  an  object  they  desire  the  more  ;  in  other  words,  that 
they  attribute  to  it  a  higher  value.  Just  as  up  to  the  present  we 
have  measured  the  value  of  things  by  the  sacrifice  a  person  is 
willing  to  make  for  their  obtainal,  i.e.  by  the  amount  of  money 
given  up  by  the  buyer ;  so,  too,  we  can  measure  it  (value)  by  the 
sacrifice  of  their  time  and  trouble  men  are  willing  to  make  for 
their  production.  In  this  sense  Adam  Smith's  fine  saying  can  be 
accepted,  — "  Labor  was  the  first  price,  the  original  purchase- 
money,  that  was  paid  for  all  things."  —  Wealth  of  Nations,  I,  v,  14. 
On  this  theory,  then,  labor  appears  to  us  no  longer  as  the  cause, 
but,  on  the  contrary,  as  the  effect  of  value,  or  rather  of  that  desire 
which  constitutes  value.  Now,  once  admitting  that  labor  is  an 
effect  of  value,  nothing  could  be  more  scientific  than  the  measur- 
ing of  a  cause  by  its  effects.  Heat  is  measured  by  the  expansion 
of  bodies,  starting  from  the  principle  that  each  increase  in  length 
of  the  thermometric  column  must  be  proportional  to  each  increase 
in  temperature.  Why  not  grant  likewise  that  the  amounts  of  labor 
are  proportional  to  the  respective  natures  of  the  articles  ? 

Yet  this  theory  will  always  encounter  two  difficulties  :  firstly, 
that  the  amount  of  labor,  the  amount  of  trouble  taken,  is  but 


82  PRINCIPLES   0?   POLITICAL   ECONOMY. 

very  imperfectly  measured  by  the  time  occupied ;  secondly,  that 
even  granting  that  the  amount  of  labor  might  be  gauged  by  its 
duration,  we  should  still  be  without  any  practical  means  of  calcu- 
lating the  average  amount  of  time  necessary  for  the  production  of 
any  one  article  of  wealth.  (For  the  development  of  this  objection, 
see  in  Book  IV  the  chapter  "  The  Different  Formulce  for  the  Divis- 
ion of  Wealth.") 

III.     What  is  Price? 

The  value  of  a  thing  can  be  expressed  in  a  thousand  different 
ways.  Homer  says  that  Diomede's  armor  was  worth  a  hundred 
oxen.  A  Japanese  would  have  said,  a  few  years  ago,  that  it  was 
worth  so  many  hundredweight  of  rice ;  an  African  negro,  so  many 
yards  of  cotton  stuffs ;  a  Canadian  trapper,  so  many  fox  or  otter 
skins ;  a  Frenchman  or  an  American  of  the  nineteenth  century 
will  say  it  is  worth  so  many  francs  or  dollars.  Each  of  these 
expressions  indicates  in  its  way  a  measure  of  value ;  but  the 
last  only,  which  measures  the  value  of  a  thing  by  the  value  of 
a  certain  quantity  of  pieces  of  gold  or  silver,  bears  the  name 
of  price. 

The  price  of  an  object,  then,  is  the  expression  of  the  relation 
which  exists  between  the  value  of  that  object  and  the  value  of  a 
certain  weight  of  gold  or  silver,  or  more  briefly,  its  value  expressed 
in  terms  of  money ;  and  as  in  every  civilized  country  money  is 
the  only  measure  of  values,  the  word  "price"  has  become  synony- 
mous with  the  word  "  value."  Indeed,  it  is  the  only  expression 
for  value  that  we  actually  employ,  though  theoretically  we  may 
use  a  host  of  others.  In  the  same  way,  for  measuring  lengths  we 
never  speak  except  of  yards,  etc.,  although  we  may  just  as  well 
express  a  particular  length  by  comparing  it  with  a  man's  size,  the 
height  of  a  tree,  or  any  other  length. 

Nevertheless,  we  must  not  altogether  confound  price  and  value, 
as  is  popularly  done,  and  believe,  for  instance,  that  because  the 
price  of  a  thing  is  the  same  in  two  different  places  its  value  must 
necessarily  be  the  same ;  or,  inversely,  believe  that  because  the 


WEALTH    AND    VALUE.  83 

price  of  a  thing  has  varied,  its  value  must  necessarily  have  varied 
in  the  same  proportion.     That  might  be  a  gross  blunder. 

If  we  suppose  that  the  value  of  the  precious  metals  has  not 
remained  the  same  from  yesterday  up  to  to-day,  it  is  clear  that  the 
value  of  every  object  measured  by  means  of  these  precious  metals 
will  be  found  to  have  altered ;  that  is  to  say,  its  price  will  have 
varied,  and  that  in  inverse  ratio  to  the  fluctuations  in  value  of  the 
precious  metals. 

If  the  length  of  a  metre,  or  rather  the  length  of  the  earth's  cir- 
cumference of  which  the  metre  is  but  a  subdivision,  were  through 
some  startling  phenomenon  reduced  by  a  tenth,  is  it  not  clear 
that  all  objects  measured  by  us  henceforward  would  appear  to  be 
one-tenth  longer  or  higher?  Yet  no  such  change  would  have 
occurred ;  it  would  be  merely  an  illusion  produced  by  the  shorten- 
ing of  the  unit  of  measure.  Similarly,  if  money,  or,  rather,  the 
precious  metals  which  constitute  it,  happened  to  lose  about  a 
tenth  of  their  value  in  consequence  of  some  far  less  extraordi- 
nary phenomenon,  say  their  superabundance,  it  is  clear  that  the 
price  of  all  objects,  that  is  to  say,  their  value  expressed  in  money, 
would  seem  to  us  to  have  risen  by  a  tenth. 

We  can  therefore  lay  down  the  following  formula :  "  every 
variation  in  the  value  of  money  involves  an  inversely  proportional 
variation  in  prices."  Would  the  reciprocal  be  equally  true,  and 
might  we  say  that  every  variation  in  prices  presupposes  an  inverse 
variation  in  the  value  of  money  ?  Our  answer  is,  "  Yes,  if  the 
variation  in  prices  is  absolutely  general ;  no,  if  it  is  not  so."  In 
the  latter  case  the  variation  in  the  prices  of  certain  objects  evidently 
depends  on  causes  pecuhar  to  these  objects.  Now  as  the  prin- 
cipal factor  which  influences  the  value  of  money  is  the  greater  or 
less  quantity  of  money  in  the  shape  of  coin,  a  second  formula  can 
be  laid  down,  which,  however,  is  not  so  absolutely  true  as  the  first 
one,  — "  every  variation  in  the  quantity  of  money  involves  a 
directly  proportional  variation  in  prices."  Thus  if  the  quantity  of 
money  in  a  country  happens  to  double,  it  is  probable  that,  other 
things  being  equal,  prices  will  rise  considerably,  though  it  would 


84  PRINCIPLES    OF    POLITICAL    ECONOMY. 

be  rash  to  say  that  they  will  double.  We  admit  that  this  second 
formula  is  not  absolutely  true,  for  quantity  is  not  the  only  factor 
which  influences  the  value  of  money.  The  development  of  com- 
merce, the  increase  in  population,  the  substitution  of  instruments 
of  credit  for  metallic  money,  may  act  in  different  ways  on  the  utility 
of  money,  and  consequently  on  its  value,  irrespective  of  any  vari- 
ation in  its  quantity.  (See  M.  Milet's  article  "  un  aphorisme  or- 
thodoxe,  raais  inexact  sur  la  monnaie  "  in  the  Revue  d^ Economie 
politique,  March-April,  1890.) 

IV.    Whether  the  Measure  of  Value  be  not  an  Insoluble 

Problem. 

The  function  of  a  common  measure  is  to  enable  us  to  compare 
objects  situated  in  different  places,  and  therefore  incapable  of  a 
direct  comparison,  or  to  compare  the  same  object  at  different 
points  of  time  and  ascertain  whether  it  has  varied,  and,  if  so,  in 
what  proportions.  By  the  use  of  the  yard-measure  I  am  able  to 
compare  the  stature  of  Lapps  with  that  of  Patagonians,  and  to 
measure  exactly  how  much  taller  the  latter  are  than  the  former. 
If  the  yard-measure  is  in  use,  or  even  known,  some  million  years 
hence,  it  would  enable  me  to  compare  man  of  that  date  with  man 
as  he  is  to-day,  and  to  ascertain  whether  he  has  degenerated  in 
stature. 

But  it  is  clear  that  our  conclusions  will  be  accurate  only  so  long 
as  we  are  certain  that  the  length  of  the  yard-measure  used  as  our 
standard  is  exactly  the  same  in  Lapland  and  in  Patagonia,  and 
that  a  thousand  years  hence  it  will  be  just  what  it  is  to-day.  Inva- 
riability of  the  magnitude  chosen  as  a  common  measure,  invaria- 
bility in  space  and  in  time,  appears  then  to  be  an  indispensable 
condition;  or,  at  any  rate,  if  this  magnitude  varies,  we  must  be 
able  to  determine,  and  consequently  to  correct,  these  variations. 

We  require  the  same  utility  from  a  common  measure  of  values ; 
that  is  to  say,  from  money.  By  its  aid  we  wish  to  be  able  to  com- 
pare the  values  of  commodities  situated  in  different  places,  or  to 


WEALTH    AND    VALUE.  85 

compare  the  value  of  one  particular  commodity  at  different  times. 
Is  it  not  of  great  interest  to  a  corn-merchant  to  know  whether  corn 
has  a  higher  value  in  France  than  in  Russia,  if  he  has  more  this 
year  than  he  had  last  year?  But  of  what  use  would  our  calcu- 
lations be,  if  the  value  of  the  commodity  we  take  as  our  unit  {i.e. 
the  value  of  money)  was  not  the  same  in  Russia  as  in  France,  not 
the  same  this  year  as  last  year?  Is  it  not,  then,  necessary  for  the 
value  of  money,  also,  to  satisfy  the  condition  indispensable  for  every 
common  measure,  —  namely,  invariability  in  space  and  in  time  ? 

Now  we  know  from  our  previous  explanation  that  the  value  of 
each  thing  varies,  and  that  of  the  precious  metals  likewise,  although 
in  smaller  proportions  than  in  the  case  with  the  others.  Thus  the 
attempt  to  discover  a  measure  of  values  would  seem  to  be  an 
insoluble,  nay,  contradictory  problem,  a  very  squaring  of  the  circle 
for  political  economy ;  this,  in  truth,  is  the  almost  unanimous 
opinion  of  economists. 

Yet  we  cannot  join  them.  It  is  true  that  we  must  abandon  the 
hope  of  finding  an  invariable  unit  of  measure,  but  this  condition  is 
not  absolutely  indispensable. 

In  no  sphere  of  work,  in  fact,  have  men  been  able  to  discover  a 
rigorously  invariable  standard.  Even  the  metre  [3.2S0  feet]  of 
platinum  and  iridium,  which  was  cast  with  great  trouble  and  at 
great  expense  at  the  Conservatoire  des  Arts  et  Metiers  to  serve  as 
standard  for  all  countries  which  have  adopted  the  metric  system, 
even  this  varies  in  length  for  each  degree  of  temperature.  But 
the  coefficient  of  expansion  is  known  and  the  necessary  rectifica- 
tions are  made.  The  litre  [1.760  pints]  of  distilled  water,  which 
serves  as  unit  of  measure  for  weight,  under  the  name  of  kilogramme 
[2.204  pounds  avoirdupois],  has  really  a  weight  which  varies  for 
each  degree  of  latitude  or  each  yard  of  altitude.  But  we  know 
the  law  of  these  variations  and  can  reckon  for  them. 

In  the  same  way  we  should  care  little  for  our  type  of  value 
varying,  if  only  we  could  discover  and  determine  those  variations : 
that  once  accomplished,  nothing  would  be  easier  than  the  making 
of  the  necessary  corrections. 


86  PRINCIPLES    OF    POLITICAL    ECONOMY. 

The  whole  question,  then,  resolves  itself  into  this :  can  we  dis- 
cover  and  determine  these  fluctuations  ? 

Let  us  suppose  that  to-day  a  list  was  to  be  carefully  prepared 
of  the  price  of  all  commodities,  not  one  being  omitted.  Ten  or  a 
hundred  years  hence  let  a  new  list  of  prices  be  compiled ;  if  on 
comparing  this  with  the  former  one  it  be  found  that  all  prices, 
without  exception,  have  increased  fifty  per  cent,  on  such  an 
hypothesis  we  can  affirm  that  the  value  of  money  has  actually  fallen 
thirty-three  per  cent.  For  henceforward  everything  that  used  to 
cost  two  shillings  costs  three ;  that  is  to  say,  three  shillings  are 
only  worth  what  two  used  to  be,  and  therefore  money  as  coin  has 
lost  a  third  of  its  value. 

But  it  may  be  asked,  what  authorizes  us  to  draw  such  a  con- 
clusion? 

The  following  line  of  argument :  Such  a  phenomenon  as  a 
general  and  uniform  rise  of  prices  permits  of  but  two  possible 
explanations  :  we  can  admit — either  that  things  are  what  they  seem 
to  be,  i.e.  that  all  commodities  have  undergone  an  upward  move- 
ment, which  is  both  universal  and  identical ;  —  or  that  the  value  of 
one  thing  only,  say  money,  has  been  subjected  to  a  downward 
movement,  no  change  whatsoever  having  occurred  in  the  value  of 
all  other  commodities.  Which  of  these  explanations  are  we  to 
choose  ?  Common  sense  does  not  allow  a  moment's  hesitation. 
In  proportion  to  the  simplicity  and  ease  of  the  second  explana- 
tion is  the  improbability  of  the  first,  in  consequence  of  the  mar- 
vellous combination  of  circumstances  which  it  requires.  How 
are  we  to  conceive  a  cause  capable  of  acting  simultaneously  and 
equally  on  the  value  of  the  most  dissimilar  objects,  as  regards  their 
utility,  their  quantity,  and  their  mode  of  production?  How 
imagine  a  cause  able  to  raise  at  exactly  the  same  time  and  in  pre- 
cisely identical  proportions,  the  value  of  silk  and  of  coal,  of  corn 
and  of  diamonds,  of  lace  and  of  wines,  of  land  and  of  manual 
labor,  and  of  all  other  things  which  are  not  bound  up  with  one 
another,  and  in  fact  are  absolutely  independent?  The  choice  of 
such  an  exi)lanation  would  be  just  as  irrational  as  to  hold  that  the 


WEALTH    AND    VALUE.  8/ 

motion  of  the  stars  is  better  explained  by  the  system  of  Ptolemy 
than  l)y  that  of  Copernicus.  This  movement  may  be  interpreted  in 
two  ways,  either  by  the  displacement  of  the  entire  heavenly  vault 
from  east  to  west ;  or,  perfectly  easily,  by  the  displacement  of  our 
earth  in  the  contrary  direction.  Now,  in  spite  of  the  lack  of  any 
direct  proof,  we  do  not  doubt  for  a  moment  which  is  the  prefer- 
able and  real  explanation.  It  is  absurd  to  imagine  that  heavenly 
bodies,  so  different  in  nature,  and  so  enormously  distant  from  one 
another  as  the  sun,  moon,  planets,  bright  stars,  and  nebulous  stars, 
could  execute  such  a  movement,  preserving  their  respective  places 
and  mutual  distances  as  if  they  were  soldiers  on  parade.  An 
identical  line  of»argument  must  be  used  to  account  for  the  upward 
movement  of  prices  ;  it  can  be  rationally  understood  only  as  a  sort 
of  optical  illusion ;  it  is  an  apparent  movement  caused  by  the 
actual  and  inverse  movement  of  money,  which  discloses  it  to  us 
and  measures  it  at  one  and  the  same  time  (see  Cournot,  op.  cit). 

In  reality,  the  circumstances  are  not  so  simple  as  we  have  sup- 
posed them  to  be  for  the  sake  of  argument.  An  absolutely  gen- 
eral and  uniform  rise  of  prices  will  never  be  shown  to  occur ;  as 
the  value  of  each  individual  object  depends  on  its  particular 
causes  of  variation,  we  shall  only  find  that  certain  prices  have 
risen,  but  in  very  different  proportions  ;  that  others  have  remained 
stationary,  and  that  some  have  even  fallen. 

Yet  if  skilfully  managed  calculations  could  strike  a  general  aver- 
age, say  a  rise  of  ten  per  cent,  this  could  only  be  explained,  for 
the  reasons  given  above,  by  an  equal  (and  inverse)  fall  in  the 
value  of  money. 

This  may  be  paralleled  by  another  analogy  borrowed  from  as- 
tronomy. The  stars,  which  are  inaccurately  termed  fixed  stars, 
have  been  discovered,  in  reality,  to  change  their  positions  in  very 
divergent  directions.  Yet  astronomers  believe  they  have  discov- 
ered a  mean  alteration  of  all  these  movements  towards  a  specific 
point  in  the  sky.  No  other  way  of  accounting  for  this  general 
movement  has  been  found,  than  that  it  should  be  regarded  as  an 
optical  illusion,  produced  by  a  slipping  movement   of  our  solar 


88  PRINCIPLES    OF    POLITICAL    ECONOMY. 

system  towards  an  exactly  opposite  point.     An  attempt  has  even 
been  made  to  measure  this  latter  movement. 

We  can  now  easily  understand  how  variations  of  the  standard 
could  be  calculated  from  variations  in  prices,  and  how  tables  of 
these  fluctuations  could  be  pubUshed  at  fixed  times,  to  serve  as  an 
official  guide  for  the  correction  of  the  errors  which  arise  from  the 
use  of  money  as  the  measure  of  values ;  thus  debtors  who  had 
borrowed  a  hundred  pounds  might  be  discharged  from  their  obli- 
gations on  the  payment  of  only  ninety,  or  inversely  might  be  com- 
pelled to  pay  one  hundred  and  ten,  according  as  the  computation 
showed  a  rise  or  a  fall  of  ten  per  cent  in  the  value  of  money. 
Similar  tables  of  reference  have  been  previously  proposed  in  1S22 
by  Lowe,  in  1833  by  Scrope.     (See  Jevons  on  Money,  page  328.) 

V.    Whether  Money  should  be  reckoned  as  Wealth. 

Popular  opinion  would  give  a  ready  answer  to  this  question. 
Always  —  we  might  almost  add  everywhere  —  men  have  given 
money  a  quite  exceptional  place  in  their  thoughts  and  desires. 
They  have  regarded  it,  if  not  as  the  only  wealth,  as  at  any  rate  by 
far  the  most  important,  and,  truth  to  tell,  they  appear  to  esteem  all 
other  wealth  only  in  proportion  to  the  quantity  of  money  that  can 
be  acquired  for  it.  The  value  a  tradesman  places  on  his  goods  in 
taking  stock  of  his  wealth  means  nothing,  so  long  as  they  are  not 
realized  (as  he  would  express  it)  ;  that  is  to  say,  are  not  sold. 
Thus,  in  his  opinion,  wealth  goes  for  nothing  except  when  it  exists 
in  the  shape  of  coin.  For  a  man  to  be  rich,  he  must  possess 
either  money  or  the  means  of  obtaining  it. 

It  would  be  interesting  to  trace  through  history  the  various 
shapes  taken  by  this  idea  which  confounds  gold  with  wealth. 
There  were  the  attempts  of  the  medix>val  alchemists  to  transmute 
all  metals  into  gold  and  thereby  accomplish  what  they  termed 
the  magnum  opus,  which  would  have  been  far  less  a  chemical 
discovery  than  an  economic  revolution.  There  was  the  enthu- 
siasm kindled  in  the  Old  World  on  the  arrival  of  the  first  galleons 


WEALTH    AND    VALUE.  89 

from  America,  convincing  men  that  in  fabled  Eldorado  an  end 
would  be  found  for  all  miseries.  The  same  idea  was  manifested 
in  the  efforts  made  by  governments  to  establish  that  ingenious 
"  Mercantile  System  "  that  was  to  cause  money  to  flow  into  the 
countries  that  had  it  not,  and  to  prevent  it  quitting  those  lands 
which  were  possessed  of  it.  Even  to-day  this  old  confusion  is 
still  extant ;  it  is  visible  in  the  anxious  care  with  which  statesmen 
and  financiers  watch  the  goings-out  and  the  comings-in  of  coin, 
as  they  appear  to  result  from  the  balance  between  exports  and 
imports. 

But  on  turning  to  economists  we  shall  receive  quite  another 
answer ;  for  it  was  by  a  protest  against  this  very  idea,  which  it 
termed  a  prejudice,  that  political  economy  first  manifested  its 
existence.  Political  economy  was  but  new  born  and  was  still  stam- 
mering with  Boisguillebert  when  it  sent  forth  from  his  lips  this 
utterance  :  "  It  is  quite  certain  that  money  is  not  a  good  of  itself, 
and  its  quantity  does  not  create  the  opulence  of  a  country." 
—  Economistes  du  XVII P  Steele.  Edit.  Guillaumin,  Tome  I,  page 
209.  Since  Boisguillebert's  days  every  economist  has  regarded 
coin  with  absolute  contempt,  and  has  stated  it  to  be  a  mere  com- 
modity like  everything  else,  and  even  much  inferior  to  any  other 
article ;  for  by  itself  it  is  incapable  of  satisfying  any  want  or  of 
affording  us  any  enjoyment,  and,  indeed,  is  the  only  thing  whose 
abundance  and  scarcity  can  be  said  to  be  matters  of  perfect  indif- 
ference. If  there  are  few  pieces  of  money  in  a  country,  each  one 
will  have  a  greater  purchasing  power ;  if  there  are  many,  the  pur- 
chasing power  of  each  coin  will  be  less.  What  does  it  matter 
to  us? 

These  two  opinions  can  be  easily  reconciled,  however  contra- 
dictory they  may  appear  to  be.  The  public,  as  usual,  only  takes 
the  individual  point  of  view,  and  is  correct  according  to  its  own 
lights ;  the  economists  are  right  from  the  general  point  of  view. 

Every  piece  of  money  must  be  regarded  as  an  "  order  "  or  ticket 
which  is  valid  as  regards  the  sum-total  of  existing  wealth,  and  gives 
its  holder  the  right  of  claiming  as  his  own,  and  at  his  own  choice, 


90  PRINCIPLES    OF    POLITICAL    ECONOMY. 

any  portion  of  this  wealth,  until  the  value  of  the  coin  has  been 
reached.  Moreover,  as  may  be  seen  in  MacLeod's  works,  this 
"  order "  possesses  an  advantage  over  credit  papers,  in  that  it 
carries  its  own  security  with  it ;  for  it  is  guaranteed  by  the  value 
of  the  metal  that  composes  the  coin. 

Naturally  each  one  of  us  desires  to  have  the  greatest  possible 
number  of  these  orders,  and  the  more  we  have,  the  richer  we  are. 
We  know  well  enough  that,  in  themselves,  these  orders  can  neither 
stay  our  hunger  nor  slake  our  thirst.  We  are  not  so  stupid  as  to 
think  that ;  and  ages  before  economists  had  lighted  on  this  truth, 
legend  had  taught  it  in  its  tale  of  King  Midas  dying  of  hunger 
while  surrounded  by  wealth  which  his  own  folly  had  turned  into 
gold.  Yet  even  the  contemplation  of  such  a  fate  has  not  prevented 
us  from  regarding  these  "  orders  "  as  far  more  convenient  than 
any  other  kind  of  wealth,  and  we  are  quite  right  in  thinking  so. 

For,  in  society  as  it  is,  every  one  who  desires  to  obtain  an  ob- 
ject he  has  not  produced  himself  (and  the  immense  majority  of 
people  are  thus  situated)  can  only  obtain  it  by  a  double  process : 
firstly,  by  exchanging  the  products  of  his  labor,  or  his  labor  itself, 
for  money — this  is  called  "  to  sell  "  ;  secondly,  by  exchanging  this 
money  for  the  objects  he  desires  —  i.e.  "  to  buy."  The  second  of 
these  processes,  purchase,  is  very  simple  ;  by  means  of  money  a 
wished-for  object  is  always  easily  obtained.  The  first  process,  sale, 
is  infinitely  more  difficult ;  money  is  not  always  readily  procurable 
for  any  article.  Thus  the  possessor  of  money  is  in  a  far  better 
position  than  the  possessor  of  any  other  commodity  :  for  the  satis- 
faction of  his  wants  the  former  has  but  one  stage  to  clear,  and  that 
an  easy  one ;  the  latter  has  two,  and  one  of  them,  an  awkward  bit 
of  ground,  presents  considerable  difficulty.  It  has  been  well  said 
that  any  article  of  wealth  corresponds  only  to  a  special  and  deter- 
minate want,  while  money  corresponds  to  a  general  atid  universal 
want.  The  owner  of  some  commodity  may  not  know  what  to  do 
with  it.  The  possessor  of  money  will  have  no  trouble  of  that  kind ; 
he  will  always  find  some  one  to  take  it  from  him.  If  by  chance 
he  is  not  al)le  to  make  use  of  it  at  the  moment,  he  has  tlic  handy 


WEALTH    AMD    VALUE.  9 1 

expedient  of  keeping  it  for  a  more  favorable  opportunity.  Few 
other  goods  can  be  kept  in  that  fashion. 

But  the  possession  of  money  carries  with  it  what  is  perhaps  an 
even  greater  advantage ;  for  he  who  has  money  can  make  sure  of 
being  able  to  fulfil  his  engagements  :  no  other  wealth  enjoys  this 
remarkable  quality ;  for  in  the  eyes  of  the  law,  just  as  in  the  un- 
written law  of  custom,  money  is  regarded  as  the  only  means  of 
discharging  liabilities.  There  is  no  business  man  or  manufacturer 
who  does  not  always  owe  more  or  less  considerable  amounts. 
Now  his  having  in  stock  goods  worth  more  than  the  sum-total  of 
his  debts  might  be  useless  (and  in  cases  of  failures  it  sometimes 
happens,  when  all  reckonings  have  been  made,  that  the  assets 
exceed  the  habilities)  ;^  unless  at  the  desired  time  he  is  able  to  get 
his  signature  honored  by  that  particular  form  of  wealth  which  we  call 
"  hard  money,"  he  is  declared  bankrupt.  Is  it  surprising,  then,  that 
so  great  importance  is  attached  to  a  commodity  on  the  possession  of 
which  our  credit  and  our  honor  may  at  any  moment  be  dependent  ? 

If  we  turn  from  the  position  of  the  individual  man,  and  con- 
sider the  whole  mass  of  individuals  who  constitute  society,  the 
point  of  view  changes,  and  there  is  more  correctness  in  the  econo- 
mists' thesis  that  the  amount  of  money  in  a  country  is  a  matter  of 
indifference.  It  would  be  no  use  to  me  to  have  the  amount  that 
I  hold  multiplied  by  ten,  if  //le  same  thing  happened  for  all  the 
other  members  of  society.  On  that  hypothesis  I  should  be  no 
richer ;  for  wealth  is  purely  relative,  and  I  should  not  be  able  to 
obtain  a  larger  measure  of  satisfaction  than  I  previously  had.  For 
as  there  is  no  increase  in  the  sum-total  of  wealth  from  which  these 
"  orders  "  are  payable,  each  order  will  entitle  me  to  a  share,  which 
is  ten  times  less.  In  other  words,  the  purchasing  power  of  each 
coin  will  be  ten  times  less  ;  or  again,  all  prices  will  be  multiplied  by 
ten,  —  and  my  position  will  be  as  it  was. 

However,  in  their  ynutual  relations,  countries,  like  individuals, 

^  In  the  crisis  in  the  London  Money  Market,  November,  1S90,  the  great 
House  most  seriously  affected  is  said  at  the  time  of  its  stoppage  to  have  had 
assets  exceeding  its  liabilities  by  no  less  than  ;^4,ooo,ooo  sterling.  —  J.  B. 


92  PRINCIPLES    OF    POLITICAL    ECONOMY. 

gain  by  being  well  provided  with  money,  but  rather  less,  however. 
As  exchange  relations  and  credit  transactions  between  countries 
are  not  so  numerous  as  they  are  between  individuals,  money, 
whether  as  the  instrument  of  purchase  or  of  payment,  is  not  so 
important  a  factor  in  such  relations.  Still,  the  increasing  solidarity 
of  the  nations  will  tend  to  proportionally  enhance  the  power  of 
money  in  this  field. 

If  we  were  to  multiply  by  ten  the  amount  of  money  in  France, 
there  would  be  no  change  in  the  respective  position  of  Frenchman 
as  against  Frenchman  (the  increase  being  premised  to  be  propor- 
tional for  all)  ;  but  France  would  not  be  on  the  same  terms  as 
regards  foreign  countries,  and  so  obvious  a  fact  is  erroneously 
denied  by  economists  in  their  struggle  against  the  mercantile  sys- 
tem. Their  very  abundance  would  cause  pieces  of  money  to  be 
depreciated  in  France,  but  not  elsewhere  ;  they  would  retain  intact 
their  purchasing  power  in  foreign  markets,  and  France  might  thus 
obtain  an  increase  of  satisfaction  which  would  be  in  proportion  to 
her  increase  of  money.  However,  as  we  shall  show  when  dealing 
with  international  trade,  this  privileged  position  could  not  last 
long. 

The  economists'  dogma,  that  the  quantity  of  money  is  a  matter 
of  indifference,  does  not  become  perfectly  true  till  we  not  only 
extend  our  view  over  all  individual  men,  and  over  all  countries, 
but  embrace  in  our  observations  the  human  race  at  large.  We 
might  then  assert  with  absolute  accuracy  that  the  discovery  of 
gold  mines,  a  hundred  times  more  valuable  than  those  we  are  now 
cognizant  of,  would  not  benefit  man  in  the  least.  Nay,  we  should 
rather  be  inconvenienced ;  for,  as  gold  would  be  worth  no  more 
than  copper,  we  should  be  compelled  to  load  our  pockets  with 
as  cumbrous  a  form  of  money  as  that  which  Lycurgus  sought  to 
force  upon  the  Lacedaemonians. 


BOOK   11. 

PRODUCTION, 


Part  I. — The  Conditions  of  Individual 
Production. 

THE  FACTORS   OF  PRODUCTION. 

Our  first  study  will  be  the  conditions  of  individual  production, 
that  is  to  say,  such  conditions  as  every  man  is  subject  to,  even 
though  he  be  alone  in  the  world,  like  Robinson  Crusoe  on  his 
island.  After  that  we  shall  study  the  conditions  of  social  pro- 
duction, the  conditions  experienced  by  men  living  in  society, 
which  only  arise,  or  at  any  rate  develop,  with  the  progress  of 
civilization. 

Thanks  to  a  tradition  which  has  nowadays  become  altogether 
classical,  production  has  three  agents  attributed  to  it,  —  land,  labor, 
and  capital.  This  threefold  division  possesses  the  advantages  of 
simplicity  and  ease  ;  its  demerit  is  that  it  does  not  state  what 
should  be  stated,  and  does  state  what  should  not  be  stated. 

To  begin  with,  it  errs  in  placing  on  a  footing  of  equality  ele- 
ments of  production  which  are  extremely  unequal  in  importance, 
and  are  very  different  in  their  mode  of  action ;  it  ranks  together 
labor,  which  is  actually  the  agent  of  production,  and  capital,  which 
is  only  an  instrument ;  it  puts  on  the  same  grade  labor  and  nature, 
which  are  the  original  factors  of  all  production,  and  capital,  which 
is  merely  a  factor  of  the  second  order,  being  a  derivative  product 
of  the  two  first. 

93 


94  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Again,  it  is  incomplete  ;  for  it  omits  certain  conditions  of  pro- 
duction which  are  as  important  as  those  it  enunciates,  e.g.  time, 
the  environment,  and  so  forth. 

The  process  of  individual  production  should  be  represented  as 
follows  :  — 

Man  is  the  sole  agent  of  production,  understanding  the  word 
"  agent "  to  mean  that  it  is  he  alone  who  can  take  the  initiative 
in  every  productive  enterprise.  This  activity  of  man,  in  so  far  as 
it  is  employed  for  the  production  of  wealth,  is  called  labor.  But 
this  energy  cannot  work  in  the  void  ;  it  does  not  emanate  from  a 
creative  fiat ;  for  its  fertility  it  requires  certain  external  conditions 
which  we  shall  now  enumerate.     They  are  five  in  number. 

1.  Raw  material.  Man,  as  we  have  just  said,  cannot  make 
anything  out  of  nothing.  This  is  then  a  sine  qua  non  —  as  it  is, 
indeed,  for  the  wealth  that  is  wrongly  called  non-material,  or 
services  rendered.     Human  speech  is  only  air  in  motion. 

2.  A  certain  extent  of  ground.  For  the  production  of  anything 
some  place  is  required,  were  it  only  sufficient  to  hold  a  work-bench 
or  a  loom. 

3.  A  certain  duration  of  time.  Man's  activity  is  limited  by 
time  as  much  as  by  space.  No  act  of  production  can  be  instan- 
taneous. We  shall  see  that  this  condition,  like  the  preceding  one, 
far  from  being  purely  metaphysical,  has  consequences  which  are 
of  serious  economic  importance  and  of  great  practical  interest. 

4.  Certain  tools.  In  production  man  cannot  dispense  with 
those  implements  which,  as  has  been  well  said,  play  for  him  the 
part  of  supplementary  organs.  Of  the  numerous  definitions  which 
have  been  proposed  for  distinguishing  man  from  animals,  "  maker 
of  tools  "  is  certainly  one  of  those  which  fit  him  best. 

5.  A  favorable  environfnent,  which  is  composed  of  climatic, 
geographical,  and  geological  conditions.  Man's  activity,  like  that 
of  every  other  living  being,  is  subordinated  to  the  environment 
in  which  he  lives  and  should  evolve. 

Such  is  the  order  in  which  the  conditions  of  individual  pro> 
duction  should  be  analyzed.    Still,  although  persisting  in  regarding 


PRODUCTION.  95 

the  old  tripartite  division  as  a  vexatious  one,  we  have  been 
obHged  to  adhere  to  it  at  least  in  form.  Indeed,  for  us,  in  a 
book  like  this,  to  break  with  a  classification  which  has  been  unan- 
imously adopted  in  all  books  and  in  courses  of  instruction,^  would 
be  to  confuse  our  readers.  All  that  we  can  do  is  to  try  and  fit  these 
conditions  into  the  classical  frame  as  well  as  is  possible,  though 
some,  indeed,  do  not  easily  lend  themselves  to  such  an  attempt. 
We  will  now  take  in  succession  land,  or  rather  nature,  labor,  and 
capital,  and  seek  under  each  of  these  three  heads  for  the  various 
conditions  just  enumerated. 

1  Dr.  Bohm-Bawerk,  Kapital-Zins,  Vol.  II,  83  (English  translation  by 
Smart,  p.  79),  recognizes  only  two  productive  forces  —  Nature  and  Man.  See 
Hai~uard  Quarterly  Journal  of  Economics,  April,  1SS9,  p.  337.  —  J.  B. 


CHAPTER  I. 
NATURE. 

By  the  word  "  nature  "  we  must  not  understand  a  fixed  factor 
of  production,  for  that  would  be  meaningless,  but  rather  the  whole 
body  of  the  pre-existing  elements  supplied  to  us  by  the  environ- 
ment in  which  we  live. 

The  term  "land"  was  formerly  employed  instead  of  "nature." 
The  expression,  indeed,  is  equivalent  in  extent,  if  we  are  to  under- 
stand by  it  not  simply  cultivable  ground,  but  the  terrestrial  globe. 
No  doubt,  our  planet,  and  merely  the  superficial  crust  of  that,  is 
the  only  portion  of  the  universe  which  can  serve  as  the  field  for 
our  economic  activity.  Still,  as  savage  tribes  have  been  known  to 
make  use  of  the  crude  iron  they  have  discovered  in  fallen  aerolites, 
and  as  we  directly  borrow  the  sun's  light  for  our  photographic  pro- 
cesses and  its  her*'  for  "  Mouchot  "  machines,  taking  all  in  all,  the 
term  "  nature  "  is  the  more  accurate. 

Now,  for  man  to  produce  aught,  nature,  as  sho\vn  in  the  previ- 
ous section,  must  provide  him  with  a  favorable  environment,  a 
large  enough  extent  of  ground,  and  raw  material  which  can  be 
utilized.  Ground  might  be  said  to  be  included  in  our  term, 
"  environment."  It  is  so  philosophically,  but  not  so,  economically  : 
for  ground  is  an  object  of  property,  whereas  the  environment  is  not : 
thus  ground  is  a  separate  element.  She  also  supplies  him  with  the 
natural  forces  which  work  his  machines.  We  will  say  a  few  words 
on  each  of  these  four  ways  in  which  nature  collaborates  with  man. 

I.     The  Environment. 

It  is  possible   that  some  historians  or  philosophers  like  Mon- 
tes(iuieu  may  have  exaggerated  the  influence  of  the  geographical 
environment  on  the  social  and  political  development  of  peoples, 
96 


PRODUCTION,  97 

but  it  would  be  difficult  to  exaggerate  tliis  influence  so  far  as  it 
concerns  economic  development  and  productive  power.  Air, 
water,  and  land  have  all  had  a  decisive  influence  on  the  evolution 
of  human  societies. 

Le  Play's  school  builds  up  the  whole  of  social  science  from  this 
question  as  to  the  environment.  It  distinguishes  three  kinds  of 
ground  which  give  rise  to  the  three  types  of  primitive  societies  : 
the  steppe  to  the  pastoral  races,  the  seashore  to  the  fisher  tribes, 
ikvQ  forest  \.o  the  liunter  peoples.  These  are  the  fundamental  types 
of  simple  societies,  i.e.  those  which  ^subsist  purely  on  the  spontane- 
ous products  of  the  soil ;  but  Le  Play's  school  goes  further  and 
derives  from  them  by  relation  of  necessary  affiliation,  all  the 
complex,  or,  in  other  words,  civilized  societies.  Thus  from  the 
primitive  state  of  the  soil  it  accounts  for  the  origin  of  the  establish- 
ment of  property,  of  the  family,  etc.  This  system  has  been  treated 
in  a  very  interesting  manner  by  M.  Demolins  in  the  Revue  de  la 
science  sociale,  1886. 

I.  The  climatic  situation.  Tropical  lands  may  have  witnessed 
the  growth  of  brilliant  civilizations,  but  they  have  never  been 
•favored  with  laborious  and  industrially  fertile  races.  For  there 
Nature  seems  to  discourage  productive  activity  both  by  her  gener- 
osity and  by  her  outbursts  of  violence.  In  those  blissful  climates 
where  "  bread  grows  like  a  fruit,"  and  clothing  and  even  housing 
are  scarcely  required  in  consequence  of  the  warm  temperature, 
man  comes  to  rely  upon  nature  and  spares  himself  all  effort.  On 
the  other  hand,  in  those  regions  physical  forces  are  so  exceed- 
ingly violent,  their  various  manifestations,  torrential  rains,  floods, 
earthquakes,  cyclones,  are  so  irresistible,  that  man  is  cowed  and 
does  not  even  conceive  the  audacious  idea  of  conquering  them 
and  turning  them  to  his  own  ends  :  he  scarcely  dreams  of  meas- 
ures of  self-defence.  In  our  temperate  lands  Nature  is  niggard 
and  severe  enough  to  compel  man  to  rely  in  great  measure  upon 
his  own  efforts ;  but  the  forces  she  displays  are  not  so  awe-insi)ir- 
ing  as  not  to  allow  human  industry  to  tame  her.  Li  this  way  she 
may  be  said  to  favor  productive  activity  both  by  what  she  refuses 
and  by  what  she  gives. 


g8  PRINCIPLES    OF    POLITICAL    ECONOMY, 

2.  Geographical  configuration.  Were  it  not  for  her  insular 
position,  who  would  ever  dream  that  England  would  have  become 
the  first  maritime  and  commercial  power  in  the  world?  If  a 
proof  were  necessary  of  the  dominant  part  this  factor  has  played 
in  the  destinies  of  England,  it  would  be  supplied  by  the  curious 
feeling  of  terror  which  possessed  her  lately  at  the  mere  prospect 
of  being  united  to  the  Continent  by  a  submarine  tunnel. 

Why  has  the  continent  of  Africa,  known  to  man  from  the  remotest 
antiquity  and  the  seat  of  the  earliest  of  all  civilizations,  that  of 
Egypt,  remained  to  this  very  day  out  of  the  sphere  of  all  economic 
movements?  why,  on  the  other  hand,  are  the  two  Americas,  the  dis- 
coveries of  a  mere  yesterday,  cut  in  all  directions  by  the  currents 
of  commerce  ?  The  chief  reason  is  to  be  found  in  the  difference 
of  their  river  inter-communication.  The  rivers  of  the  New  World 
flow  into  the  ocean  by  huge  estuaries,  and  are  joined  together  by 
such  an  intricate  network,  that  we  can  pass  from  the  tributaries  of 
the  River  Plata  into  those  of  the  Amazon  and  thence  to  those  of 
the  Orinoco,  and  in  the  northern  continent  from  the  basin  of  the 
Mississippi  to  the  Great  Lakes,  almost  without  leaving  the  water- 
way; but  all  the  African  rivers,  though  no  less  large,  greet  the 
explorer  at  the  lower  parts  of  their  course  with  a  barrier  of  impass- 
able cataracts  or  of  pestilential  swamps. 

3.  The  gcfliogicai  consiitiition  of  the  soil  and  sub-soil  exerts 
no  less  influence  ;  for  it  is  this  which  creates  agricultural  and 
metallurgical  wealth.  The  dread  with  which  England  calculates 
the  time  when  her  coal  mines  may  begin  to  fail  her,  shows  well 
enough  how  much  she  owes  them  for  her  industrial  development. 
China  has  her  "yellow"  earth,  and  Russia  is  no  less  a  debtor  for 
her  rich  "black  earths"  —  r/V/t  literally,  not  merely  figuratively  ; 
for  according  to  statisticians  they  contain  nitrogen  to  the  value  of 
640,000,000  pounds  sterling. 

It  would  appear  at  first  sight  that  man  is  unable  to  modify  the 
environment  with  which  nature  has  surrounded  him,  that  his  only 
resource  is  to  adapt  himself  to  it  as  best  he  can.  Yet  he  does 
succeed  in  exercising  some  modifying  influence  on  this  very  envi- 


PRODUCTION.  99 

ronment,  though  it,  perforce,  is  extremely  limited.  As  regards 
geology,  he  cannot  create  mines  where  there  are  none,  but  by 
judicious  agricultural  improvements  he  can  remake  the  cultivable 
soil  in  detail,  and  make  arable  tracts  of  the  sites  once  occupied  by 
marshes,  stagnant  ponds,  and  even  gulfs  of  the  sea.  As  regards 
geography,  he  cannot  alter  the  great  marking  lines  drawn  by 
Nature,  but  with  a  little  favor  on  her  part  he  can  succeed  in  modi- 
fying them.  Thus  he  can  complete  a  network  of  inland  water- 
communications,  can  overcome  the  barriers  raised  by  mountains 
and  arms  of  the  sea,  by  constructing  roads  either  above  or,  bet- 
ter still,  beneath  them ;  and  greatest  of  all,  can  separate  Africa 
from  the  Old  World  continent,  and  South  America  from  the  New 
World,  thus  turning  these  two  peninsulas  into  two  islands.  Cli- 
mate certainly  cannot  be  changed ;  but  by  plantations  on  a  large 
scale,  by  fitting  cultivation,  perhaps,  too,  by  other  means,  the 
secret  of  which  we  have  not  yet  guessed,  human  industry  will  be 
able  to  advantageously  modify  the  sway  of  rain  and  even  of  the 
winds.  Thus  some  scientific  men  have  proposed  to  alter  the 
course  of  the  great  maritime  currents,  such  as  the  Gulf  Stream, 
for  the  purpose  of  distributing  heat  or  coolness  among  the  conti- 
nents, just  as  water  and  gas  are  distributed  in  towns. 

II.     The  Ground.' 

Man  needs  a  certain  amount  of  space  on  land,  were  it  only  to 
stand  on.  He  requires  rather  more  to  sleep  on,  still  more  to  build 
his  house  on,  and  far  larger  room  for  the  sowing  of  his  corn  or  the 
pasturing  of  his  flocks  and  herds.  Now  this  question  of  room 
becomes  very  serious  as  soon  as  the  population  of  a  country  has 
grown  sufficiently  dense.     When  human  beings,  in  obedience  to 

^  The  word  "  land,"  which  is  ordinarily  used,  is  a  very  complex  combination 
of  ideas;  first  comes  a  superficial  extension,  which  we  represent  by  the  word 
"ground'''' ;  then  there  are  raw  materials  exemplified  by  the  elements  which 
compose  the  soil  and  the  subsoil;  finally  come  a  numl^er  of  physical  and 
chemical  agencies  which  are  ever  at  work  in  cultivated  ground  in  the  form  of 
light,  heat,  humidity,  electricity,  and  so  forth. 


100  PRINCIPLES    OF    POLITICAL    ECONOMY. 

their  sociable  instincts,  group  together  in  one  of  those  huge  ant- 
hills called  London  or  Paris,  New  York  or  Hankow,  the  necessary 
space  for  housing  them  ends  by  becoming  deficient ;  then  plots  of 
land  acquire  a  higher  value  than  that  of  the  buildings  which  cover 
them,  even  were  they  palaces  made  of  marble ;  and  as  we  shall 
see  when  dealing  with  house-rent,  the  resulting  social  conse- 
quences are  most  deplorable  for  the  working-classes. 

However,  we  need  not  fear  that  one  day  there  may  not  be  room 
enough  on  the  earth  for  men  to  live  on  ;  yet  it  is  not  unreasonable 
to  ask  whether  there  will  always  be  enough  space  for  men  to  obtain 
food  from.  For  the  portion  of  ground  necessary  to  supply  food 
for  one  man  is  of  considerable  size,  and  this  portion  is  always  being 
diminished  by  the  progress  of  civilization  and  agricultural  methods. 
For  hunter  peoples  several  square  leagues  are  needed  per  head ; 
for  pastoral  races  some  square  miles  ;  for  agricultural  nations  a  few 
acres  are  enough ;  and  the  limit  falls  as  men  pass  from  cultivating 
the  land  far  and  wide  to  cultivating  it  thoroughly  and  deeply ; 
i.e.  from  extensive  to  intensive  cultivation.  In  China  this  latter 
mode  of  cultivation,  which  has  almost  become  kitchen-gardening, 
enables  several  men  to  subsist  on  the  produce  of  two  and  one-half 
acres.  Yet  this  defect,  though  considerably  lessened,  still  con- 
tinues, and  tends  to  make  the  human  race  somewhat  anxious  as 
to  its  future. 

No  doubt,  when  the  required  space  begins  to  fail  him,  man  will 
be  able  to  seek  it  elsewhere.  The  discovery  of  the  New  World, 
of  South  Africa,  and  of  Australia  has  enormously  extended  his 
territory  and  renders  certain  enough  room  for  many  generations 
still  to  come.  Yet  these  reserves  stored  up  for  the  future  will  be 
exhausted  some  day.  Now  if  we  are  already  somewhat  anxiously 
estimating  the  amount  of  coal  we  still  have  to  burn,  we  can 
reckon  far  more  easily  the  amount  of  earth  that  remains  over  for 
us  to  lay  hands  on.  There  is  no  hope  of  discovering  any  new 
lands.  Though  the  surface  of  the  globe  is  not  yet  entirely  occu- 
pied nor  even  known  to  us,  still  it  is  all  measured  out.  liefore 
another  century  has  passed  away  the  last  vacant  spot  will  have 


PRODUCTION.  lOI 

been  filled  up,  the  last  landmark  will  have  been  planted,  and 
henceforward  the  human  race  will  have  to  content  itself  with  its 
fifty-two  million  square  miles,  without  the  hope  of  increasing  it 
by  new  conquests. 

Its  only  consolation  then  will  be  to  repeat  the  line  that  Regnard 
inscribed,  with  a  presumption  the  future  has  falsified,  upon  a 
rock  in  Lapland,  "  Et  steiimus  tandem  ubi  dcfuit  orbisT 

III.    The  Raw  Material. 

The  inorganic  substances  which  compose  the  earth's  crust  to 
the  slight  depth  to  which  we  have  been  able  to  penetrate,  and 
the  organic  bodies  which  proceed  from  the  vegetable  or  animal 
living  creatures  which  people  its  surface,  supply  industry  with 
the  raw  material  that  is  indispensable  to  it,  and  form  the  original 
elements  of  all  wealth. 

Some  of  these  materials  Nature  has  spread  about  with  lavish 
profusion  ;  of  others  she  has  been  excessively  sparing.  Among 
the  former  may  be  mentioned  some  of  the  constituents  of  the 
earth's  crust,  —  granite,  chalky  matters,  clay,  and  the  fresh  or  salt 
water  which  covers  three-quarters  of  the  earth's  surface.  But 
those  carbon-crystals  we  call  diamonds,  and  even  some  metals, 
such  as  gold  or  mercury,  are  found  in  exceedingly  small  quantities. 

Even  the  substances  that  exist  in  large  quantities  may  be  scarce 
if  some  one  particular  region  be  considered.  No  doubt  there  are 
enough  stone-quarries  in  the  world  to  build  thousands  of  capitals 
like  Paris,  but  all  the  same  they  may  be  absent  from  the  required 
site  of  some  city,  say  Nineveh  of  old  time,  or  London  to-day. 
Sea-salt  is  unbounded  in  amount,  but  is  scarce  enough  in  Central 
Africa  to  be  used  for  money.  Fresh  water  is  the  typical  example 
of  wealth  which  is  unlimited  in  supply,  yet  we  need  not  go  as  far 
as  the  Sahara  to  find  places  where  water  is  scarce,  and  can  only 
be  obtained  with  much  engineering  toil.  In  fact,  there  is  only 
one  body  which  is  ubiquitous  and  immeasurable ;  to  wit,  the 
atmospheric  air  which  surrounds  and  envelops  the  entire  globe 


102  PRINCIPLES    OF    POLITICAL    ECONOMY. 

with  a  uniform  layer.  But  even  this  air  is  not  within  the  reach  of 
every  one,  if  special  conditions  of  salubrity,  coolness,  or  heat  are 
required.  An  arid  plot  at  Cannes  or  Nice  sells  for  ^4  a  yard. 
Why?  Because  what  is  paid  for  is  not  merely  the  right  to  the 
ground,  but  the  right  to  an  atmosphere  and  a  sun  that  are  not 
found  elsewhere. 

As  regards  the  materials  which  are  superabundant  but  unequally 
distributed,  human  ingenuity  can  remedy  such  a  disadvantage  by 
removing  the  substances  and  transporting  them  to  spots  where 
they  are  lacking.  Hence,  as  we  shall  see  later  on,  transportation 
is  really  an  act  of  production.  But  since  matter,  owing  to  its 
weight  and  inertia,  opposes  a  powerful  resistance  to  any  attempt 
at  removal,  and  since  the  labor  and  expense  necessary  for  the 
overcoming  of  this  resistance  increase  in  proportion  to  the  dis- 
tance to  be  covered,  industry  is  not  all-powerful,  and  can  only 
relatively  harmonize  the  inequalities  of  nature.  Nevertheless, 
men  are  now  so  well  furnished  with  implements  for  this  kind  of 
labor,  that  the  effect  produced  is  by  no  means  small. 

It  is  clear  that  man  cannot  increase  in  amount  substances  which 
are  really  restricted  in  quantity.  It  is  not  for  him  to  create  one 
atom  of  matter.  Yet,  by  the  aid  of  chemical  combinations  or 
decompositions,  he  can  build  up  the  bodies  he  requires.  If  the 
stock  of  diamonds  ever  nms  short,  he  may  be  able  to  manufacture 
more  by  crystallizing  coal ;  or  if  coal,  in  its  turn,  ever  becomes 
exhausted,  he  may  succeed  in  extracting  it  from  the  carbonates 
of  lime  which  are  so  very  common  in  the  earth's  crust.  In  other 
cases,  human  industry  will  have  to  restrict  itself  to  discovering 
some  sjibstitute  ;  i.e.  some  substance  possessed  of  properties  analo- 
gous to  those  of  the  missing  body.  This  search  is  usually  more 
or  less  successful ;  for  there  is  such  an  infinite  variety  of  organic 
substances  and  lifeless  matter,  that  some  can  be  found  which 
possess  common  characters,  and  can  therefore,  to  a  certain  extent, 
supply  one  another's  place.  Animal  ivory  is  threatening  to  become 
extinct  in  consequence  of  the  wasteful  and  destructive  mode  of 
elephant-hunting ;  but  in  the  forests  by  the  Amazon  a  substitute 
has  been  found  in  a  vegetable  ivory. 


PRODUCTION.  103 

IV.     Motive  Forces. 

The  work  of  production  consists  purely  of  changing  the  place  or 
the  form  of  matter.  We  have  seen  that,  because  of  its  vis  inertias, 
matter  resists  this  treatment,  and  man's  muscular  strength  is  not 
very  great. 

Nevertheless,  by  the  invention  of  tools,  man  has  been  able  to 
create  artificial  organs  which  have  wonderfully  added  to  his 
strength  and  dexterity.  Thus,  by  means  of  a  hydraulic  press,  a 
child  can  exert  unlimited  pressure  ;  and  Archimedes  justly  boasted 
that  with  a  lever  and  a  fulcrum  he  could  raise  the  earth.  Yet 
some  mathematicians  have  taken  the  trouble  to  calculate,  that, 
even  if  he  had  found  his  missing  fulcrum,  he  could  have  raised 
the  world  only  to  an  infinitesimally  small  height,  even  by  work- 
ing for  some  million  years.  For  it  is  a  law  of  mechanics  that 
when  using  tools  man  loses  in  time  what  he  gains  in  strength.  By 
them  he  can  lift  a  weight  a  thousand  times  heavier  than  he  could 
by  his  arms  alone,  but  he  will  have  to  take  a  thousand  times  as 
long  over  the  process.  Now,  time  being  a  very  precious  element, 
which  we  should  be  chary  about  wasting,  the  practical  advantage 
of  the  use  of  tools  is  comparatively  Umited.  On  the  other  hand, 
the  employment  of  machines  multiplies  strength  indefinitely. 

In  all  times,  therefore,  and  especially  since  the  abolition  of 
slavery  has  denied  him  the  gratuitous  employment  of  the  strength 
of  his  fellows,  man  has  striven  to  fortify  his  weakness  by  the  aid  of 
certain  motive  forces  supplied  to  him  by  nature.  There  are  not 
very  many  of  them,  though  too  favorable  reckonings  have  been 
made.  In  truth,  there  are  only  four  which  man  has  been  able 
to  use  in  production :  the  musci/lar  strength  of  animals ;  the 
motive  force  of  winds  and  of  water  ;  and,  best  of  all,  the  expan- 
sive power  of  vapors,  especially  of  steam. 

It  should  be  observed  that  in  proportion  to  the  powerfulness  of 
these  natural  forces  have  been  the  time  and  trouble  necessary  for 
man  to  expend  before  succeeding  in  utilizing  them  and  turning 
them  to  his  ends.     This  is  natural ;  for  resistance  increases  in 


104  PRINCIPLES    OF    POLITICAL    ECONOMY, 

direct  ratio  to  the  force.  These  results  have  been  effected  by  the 
aid  of  machines.  A  machine  is  but  a  tool  or  implement,  which 
instead  of  being  moved  by  the  hand  of  man,  is  worked  by  a 
natural  force  (water  power,  steam,  etc.).  Now  a  difficult  problem 
in  mechanics  is  involved  in  this  handling  of  a  natural  force  which 
is  sometimes  irresistible,  sometimes  unseizable,  so  as  to  compel  it 
to  turn  a  wheel,  push  a  plane,  or  work  a  shuttle. 

The  domestication  of  various  animals,  such  as  the  horse,  camel, 
elephant,  reindeer,  and  Esquimau  dog,  supplied  mankind  with 
the  first  natural  force  they  used  for  carrying,  draught,  and  tillage. 
That  of  itself  was  a  valuable  conquest ;  for  an  animal  is  propor- 
tionally stronger  than  man.  A  horse's  strength  is  estimated  as 
seven  times  greater  than  a  man's,  and  the  food  he  requires  is  by 
no  means  of  greater  cost.  But  the  number  of  such  animals  in  a 
country  is  restricted  in  proportion  to  the  increase  of  population, 
for  they  require  much  space  whence  to  obtain  food ;  thus  the 
motive  force  they  afford  is,  relatively  speaking,  not  of  any  great 
account. 

The  motive  force  of  the  wind  and  of  rivers  has  always  been 
used  for  carriage,  and  at  a  later  date,  though  still  at  a  high  an- 
tiquity, for  turning  mills.  These,  indeed,  are  most  powerful  agen- 
cies. The  motive  power  of  streams  in  France  alone,  which  is 
uselessly  expended  in  wearing  out  pebbles,  has  been  calculated 
to  amount  to  thirty  millions  horse-power ;  that  is  to  say,  to  a  force 
equal  to  the  strength  of  all  the  men  of  an  age  fit  for  work,  who  are 
to  be  found  on  earth  at  the  present  moment.  One  single  waterfall, 
such  as  Niagara,  would  feed  all  the  factories  in  England.  In  the 
few  hours  of  its  devastating  existence,  a  cyclone  develops  enough 
motive  force  to  keep  going  all  the  workshops  in  the  world  for  a 
thousand  years,  if  we  only  knew  how  to  use  it.  The  waves  into 
which  the  wind  furrows  the  bosom  of  the  sea,  the  tides  which 
twice  a  day  break  on  thousands  of  leagues  of  coast-line,  form 
literally  inexhaustible  reservoirs  of  force.  Unfortunately  up  to  the 
present  man  has  found  no  mode  of  turning  them  to  account. 
They  are  still  in  a  savage  or  untamed  state,  sometimes  too  power- 


PRODUCTION.  105 

ful  or  too  weak,  too  irregular  or  too  intermittent.  Thus  the  forces 
which  might  raise  the  world  are  even  now  scarcely  used  but  to 
turn  a  few  wretched  mills. 

The  expansive  power  of  vapors,  or  rather  the  heat  generated  by 
combustion,  of  which  this  force  is  only  a  transformation,  grants 
man  the  priceless  advantage  of  being  able  to  develop  it  where, 
when,  and  as  he  will.  It  is  mobile,  portable,  continuous,  large 
or  small  according  to  demand.  We  raise  it  from  one  up  to  ten 
atmospheres,  and  theoretically,  at  least,  there  is  no  limit.  If  water 
was  heated  to  516  degrees  Centigrade,  a  not  exceedingly  high 
temperature,  we  should  develop  a  pressure  of  1,700,000  atmos- 
pheres, which  is  more  than  sufficient  to  raise  the  Himalayas.  The 
only  difficulty  would  be  the  discovery  of  a  strong  enough  envelope. 
In  fact,  this  force  is  artificial,  being  created  not  by  nature,  but  by 
man :  he  has  made  it  for  his  own  use  and  works  it  as  he  wishes. 
No  more  obedient  slave  has  ever  bowed  under  a  master's  yoke. 

The  prehistoric  inventor,  whose  name  will  forever  remain  un- 
known, but  whom  the  gratitude  of  mankind  has  deified  as  Pro- 
metheus, he  who  first  caused  a  spark  to  spring  from  the  friction 
of  two  pebbles,  never  suspected  when  he  looked  on  this  flame, 
which  was  certainly  due  far  more  to  chance  than  to  his  genius, 
what  marvellous  power  he  was  granting  to  human  industry.  First 
of  all,  no  doubt,  fire  ministered  only  to  the  humblest  wants  of 
domestic  life.  Later  on  it  was  used  for  the  extraction,  the  found- 
ing, and  the  working  of  metals.  Its  utilization  as  a  motive  force 
dates  from  the  time  that  men  discovered  the  explosive  power  a 
spark  could  communicate  to  some  substances,  i.e.  gunpowder,  and 
in  this  form  it  is  still  employed,  not  only  to  propel  projectiles  for 
a  mile  or  two,  but  also  to  bore  tunnels.  But  it  was  not  till  New- 
comen,  in  1705,  and  James  Watt,  in  1769,  had  used  it  for  dilating 
steam  confined  in  a  chamber,  and  had  thus  created  the  wonderful 
instrument  of  modern  industry  which  we  call  the  steam-engine, 
that  fire,  or  rather  heat,  became  the  guiding  spirit  of  industry. 
I  say  that  the  steam-engine  is  a  "  wonderful "  instrument,  for  the 
sake  of  the   services  it  has  rendered  us.     In   reality  it  is  very 


I06  PRINCIPLES    OF    POLITICAL    ECONOMY. 

defective  ;  for  it  utilizes  only  a  small  part,  at  most  a  tenth,  of  the 
heat  generated  by  the  combustion  of  the  coal.  There  is  great 
waste  from  the  furnace  to  the  boiler,  and  further,  though  smaller, 
waste  between  the  boiler  and  the  engine  proper.  Hence  the 
remark  of  M.  Le  Bon,  an  engineer,  "  I  hope  that  before  twenty 
years  have  passed,  the  last  specimen  of  this  rude  machine  will 
have  taken  its  proper  place  in  museums,  side  by  side  with  the 
stone  hatchets  of  our  primitive  ancestors." 

It  will  be  seen  from  the  following  that  anxious  speculations  may 
justifiably  be  made  as  what  would  happen  to  human  industry  if, 
the  supply  of  coal  ever  failing,  furnaces  had  to  be  extinguished, 
and  it  could  no  longer  generate  at  will  that  heat  which  is  indis- 
pensable to  it  as  the  source  of  motive  power.  People  sometimes 
try  to  set  their  minds  at  ease  by  such  foolish  proposals  as  that 
of  replacing  heat  by  electricity,  though  the  only  practical  means 
we  have  of  producing  electricity  on  a  large  scale  is  precisely  the 
steam-engine. 

Men  are  already  beginning  to  ask  whether  it  is  not  possible  to 
utilize  the  immense  forces  whose  activity  is  displayed  in  those 
movements  of  the  atmosphere  and  of  the  waters,  to  which  we 
referred  just  now,  or  if  it  will  be  necessary  to  draw  the  heat  which 
we  require  from  the  source  of  all  force,  the  sun  itself.  There,  in 
truth,  is  a  really  incalculable  fount  of  force,  which  is  estimated  to 
be  equal  to  9^  millions  of  horse-power  per  square  mile.  This  is 
already  used  by  the  Mouchot  machine,  but  in  a  practically  insufifi- 
cient  manner.  Even  admitting  the  success  of  such  an  attempt, 
this  force  borrowed  from  the  sun  will  have  the  disadvantage  com- 
mon to  it  with  the  other  natural  forces,  of  not  possessing  the 
property  of  being  generated  where,  when,  and  as  we  wish.  It 
will  not  be  manageable.  The  sun  does  not  shine  always  or  every- 
where. If  on  that  orb  is  to  fall  the  task  of  keeping  our  workshops 
going,  England  will  be  doomed  as  a  manufacturing  and  industrial 
power ;  the  fogs  of  the  North  Sea  will  become  her  winding-sheet, 
and  men  will  henceforward  have  to  journey  into  the  heart  of  the 
Sahara  to  build  their  industrial  capitals  ! 


TRODUCTION.  10/ 

Still,  to  be  able  to  avail  ourselves  of  these  natural  forces,  we 
only  require  to  find  the  secret,  on  the  one  hand,  of  trafisporiing 
them  for  long  distances,  so  as  to  apply  them  to  the  point  where 
they  can  be  utiHzed,  and,  on  the  other  hand,  of  storing  up  those 
forces  which  are  developed  only  intermittently,  so  as  to  employ 
them  at  the  moment  when  they  are  required.  Electricity  seems 
capable  of  rendering  us  this  double  service.  The  fact  is  already 
established  that  force  can  be  transported,  just  as  a  despatch,  by 
a  simple  telegraphic  wire,  but  one  made  of  copper  and  somewhat 
larger  than  the  ordinary  wires.  Moreover,  electricity  can  be  stored 
up  in  accumulators  that  are  already  used  to  propel  steamers, 
tramways,  and  balloons. 

In  that  quarter,  perhaps,  lies  the  germ  of  a  beneficent  revolution 
in  industry.  If  some  day  motive  force  could  be  distributed  from 
house  to  house,  like  water  or  gas,  and  could  be  obtained  by  the 
mere  turning  of  a  tap,^  we  should  see  no  more  of  those  huge  work- 
shops, which  to  the  laboring  classes  are  as  unhealthy  quarters, 
from  the  hygienic  as  they  are  from  the  moral  point  of  view,  and 
which,  together  with  other  disadvantages,  render  family  life 
impossible. 

^  This  is  being  done  even  now,  to  some  extent,  in  Germany,  where  the 
small  concerns  still  employ  more  hands  than  the  large  (in  1882,  four  millions 
as  against  three  millions).  See  an  article  by  Dr.  Albrecht  of  Berlin  in 
Schmoller's  yahrbuch  fiir  Gesetzgebung  (1889),  13th  series,  Part  II. — J.  B. 


CHAPTER  II. 
LABOR. 

I.    On  the  Part  played  in  Production  by  Labor. 

To  achieve  its  ends,  and  principally  to  satisfy  the  necessities  of 
existence,  every  living  thing  is  obliged  to  do  a  certain  amount  of 
work.  The  seed  has  to  toil  to  raise  its  covering,  the  hardened 
crust  of  the  earth,  and  then  breathe  the  air  and  feel  the  light. 
While  clinging  to  its  bed,  the  oyster  opens  and  closes  its  shell  in 
order  to  draw  from  the  surrounding  water  the  first  elements  of 
nourishment.  The  spider  spins  its  web,  the  fox  and  wolf  labor 
while  they  hunt  their  prey.  Man  is  not  exempt  from  this  univer- 
sal law ;  he,  too,  has  to  persevere  and  toil  in  order  to  supply  his 
wants.  As  Xenophon  says,  "  The  gods  sell  us  all  good  things  at 
the  price  of  our  labor."  Among  plants  this  striving  is  unconscious, 
among  animals  instinctive  ;  with  man  it  becomes  a  voluntary  and 
conscious  act,  and  its  name  is  labor. 

But  is  there  not  some  wealth  that  man  can  obtain  without  work, 
such  wealth  as  nature  lavishly  bestows  on  him  ? 

It  must  first  of  all  be  observed  that  there  is  not  a  single  product 
which  does  not  in  some  measure  presuppose  the  intervention  of 
labor.  That  follows  from  the  meaning  of  the  word  "product," 
productinn,  "  drawn  from  somewhere."  But  what  could  have 
performed  this  drawing  or  extraction  except  the  hand  of  man? 
For  the  application  of  fruits  to  the  satisfying  of  our  wants,  even 
those  fruits  which  nature  has  given  us,  such  as  the  bread-tree 
fruit,  the  banana,  dates,  or  those  shellfish  which  in  southern  lands 
are  called  sea-fruit,  man  must  have  given  himself  the  trouble  of 
gathering  them.  Now,  this  gathering  is  clearly  labor,  and  under 
certain  circumstances  work  of  an  exceedingly  laborious  nature. 
io8 


PRODUCTION.  109 

It  should  further  be  remarked  that  a  just  conception  is  not  usu-  V 
ally  made  of  the  important  part  played  by  labor,  even  in  the  for- 
mation of  those  products  which  are  often  very  inaccurately  termed 
"  natural."  We  are  too  ready  to  believe  that  everything  which 
grows  on  the  earth  —  cereals,  vegetables,  fruit  —  all  are  due  to  the 
generosity  of  that  abna  pat-ens  rerutn.  As  a  matter  of  fact,  most 
of  the  plants  which  supply  man  with  food  have  been,  if  not  created, 
at  any  rate  so  modified  by  the  cultivation  and  the  labor  of  hun- 
dreds of  generations,  that  botanists  cannot  discover  their  original 
types.  Wheat,  maize,  lentils,  beans,  have  been  found  nowhere  in 
the  wild  state.  Even  such  species  as  are  met  with  in  a  state  of 
nature  are  wonderfully  different  from  their  cultivated  congeners. 
Between  the  acid  berries  of  the  wild  vine  and  our  grapes,  between 
the  edible  vegetables  and  succulent  fruits  of  our  kitchen-gardens 
and  orchards  and  the  tough  roots  and  the  bitter  or  even  poison- 
ous berries  of  wild  varieties,  there  is  a  vast  difference ;  so  great, 
indeed,  that  these  fruits  and  vegetables  may  be  regarded  as  arti- 
ficial products ;  that  is  to  say,  as  actual  creations  of  human  indus- 
try. Here  is  the  proof.  If  the  constant  labor  of  cultivation  be 
relaxed  for  a  few  years,  these  products  speedily  degenerate ;  i.e. 
they  revert  to  a  state  of  nature,  losing  all  those  virtues  with  which 
human  industry  had  endowed  them. 

It  is  true,  however,  that  some  wealth  is  not  the  product  of 
labor,  precisely  because  it  is  not  a  product ;  i.e.  it  pre-exists  before 
any  act  of  production.  I  refer  to  the  earth  and  all  the  organic  matter 
or  inorganic  substances  with  which  it  supplies  us,  —  the  bubbling 
spring  of  water  or  petroleum,  the  growing  forest,  the  natural 
prairie,  the  stone-quarry,  the  coal  or  metal  mine,  the  waterflill 
suitable  to  turn  a  mill-wheel,  the  guano-bed  deposited  by  sea- 
birds,  the  fishery  banks  teeming  with  fish,  shellfish  or  coral ;  in 
a  word,  the  original  source  of  the  elements  of  all  our  wealth. 

These,  surely,  constitute  wealth,  and  of  the  first  rank  in  order 
of  importance,  but  they  clearly  exist  independently  of  any  labor 
done  by  man. 

Still  for  a  just  conception  of  the  part  played  by  labor  in  pro- 
duction, we  must  add  two  further  points. 


no  PRINCIPLES    OF    POLITICAL    ECONOMY. 

1.  Such  wealth  does  not  exist,  qua  wealth,  i.e.  as  useful  and 
valuable  objects,  until  human  intelligence  has  been  able,  firsdy,  to 
discover  their  existence,  and  furthermore  to  perceive  that  they 
possess  qualities  which  render  them  fit  to  satisfy  any  of  our  wants. 
Let  us  take,  for  example,  any  piece  of  land,  say  a  corn-land  in 
America.  Why  is  this  wealth  ?  Because  some  explorer  or  pioneer, 
following  th-e  course  Christopher  Columbus  first  opened  out,  has 
discovered  the  existence  of  this  particular  spot.  Now  the  fact  of 
discovery,  whether  it  be  applied  to  a  New  World  or  to  mushrooms 
in  a  wood,  always  presupposes  a  certain  amount  of  labor. 

2.  Again,  such  wealth  cannot  be  utilized,  i.e.  employed  for  the 
satisfaction  of  man's  wants,  until  they  have  been  subjected  to 
more  or  less  labor :  in  the  case  of  virgin  soil,  till  it  has  been 
cleared  and  opened  out ;  with  a  mineral  spring,  till  it  has  been 
secured  and  bottled ;  with  mushrooms  or  shells,  till  they  have 
been  gathered. 

Thus  even  with  wealth  which  is  termed  natural,  labor  is  seen 
to  be  a  real  agent  of  production ;  for  without  it,  such  objects 
would  be  virtually  non-existent  for  us,  inasmuch  as  they  would 
serve  no  purpose  for  us.  In  a  word,  it  is  labor  which  discovers 
and  utilizes  them. 

Of  course,  we  do  not  imply  by  this  that  natural  wealth  obtains 
all  its  value  from  labor;  we  have  already  rejected  that  theory. 
According  to  Bastiat,  all  natural  wealth  is  gratuitous,  i.e.  valueless, 
because  such  objects  are  the  free  gift  of  nature,  and  may  be  held 
to  preserve  that  character  in  all  the  successive  transactions  through 
which  they  may  pass.  But  the  most  ordinary  observation  suffices 
to  give  the  lie  to  that"  theory,  which,  indeed,  was  merely  conceived 
to  defend  landed  property  from  the  reproach  the  socialists  bring 
against  it,  of  monopolizing  the  gifts  of  nature  which  should  be  the 
common  property  of  all  men.  As  value  is  based  on  utility,  all 
natural  wealth,  such  as  virgin  soil,  gold-bearing  strata,  guano,  etc., 
possesses  a  value  which  exists  before  any  act  of  labor.  P'or  a 
long  time  the  government  of  Peru  has  had  no  other  income  but 
the  sale  of  its  guano. 


PRODUCTION-  III 

II.    How  Labor  produces. 

When  we  survey  the  infinite  variety  of  products  which  rise  from 
under  the  fairy  fingers  of  human  industry,  we  are  apt  to  imagine 
that  labor  is  a  power  which  is  infinitely  complex  in  its  methods, 
and  which  defies  all  analysis.  Yet  it  is  nothing  of  the  sort. 
Labor  is  merely  a  muscular  force  directed  by  some  superintending 
intelligence :  it  can  have  no  effects  but  those  of  a  motive  force, 
and  that,  a  very  weak  one  ;  viz.,  a  moveme?if,  a  change  of  place. 

This  displacement  may  be  a  change  of  place  of  the  object 
itself,  or  of  its  component  parts.  In  the  latter  case,  we  say  that 
there  is  a  change  of  form,  but  every  transformation  amounts  to  a 
displacement.  The  exquisite  shapes  assumed  by  clay  under  the 
hand  of  the  potter  or  the  statuary,  the  rich  and  ingenious  patterns 
wrought  on  lace  by  the  fingers  of  the  lace-maker,  have  no  other 
cause  than  the  arrangements,  or  rather,  the  displacements,  of  the 
molecules  of  clay  or  the  threads  of  the  tissue.  All  that  man's 
labor  can  do  is  to  stir,  separate,  reunite,  insert,  superpose,  and 
arrange  effects  which  are  only  different  modes  of  motion.  Take 
the  production  of  bread,  and  pass  in  review  the  various  acts  of 
this  production,  —  ploughing,  sowing,  reaping,  winnowing,  grind- 
ing, sifting,  kneading,  putting  in  the  oven,  —  they  are  nothing  but 
movements  and  changes  of  place  effected  upon  matter.  Analyze 
any  other  industry,  and  no  other  factor  will  be  found  j  for  this  is 
the  only  part  man  plays  in  the  work  of  production,  this  is  the 
limit  of  his  power.  All  the  profound  transformations  which  are 
effected  in  the  constitutions  of  bodies  and  which  by  modifying 
their  physical  or  chemical  properties  conduce  to  production,  —  the 
mysterious  evolution  of  a  plant  from  its  seed,  the  fermentation 
which  turns  a  sugary  syrup  into  alcohol,  the  chemical  combination 
which  turns  out  steel  from  the  furnace  iron,  —  these  are  not  man's 
work.  His  part  has  been  limited  to  placing  the  materials  in  the 
required  order  :  the  corn  in  the  earth,  the  vintage  in  the  vat, 
the  ore  in  the  furnace  ;  nature  has  done  the  rest. 

Yet,   however  feeble   this  motive   force   may  be,   it    is    strong 


112  PRINCIPLES    OF    POLITICAL    ECONOMY. 

enough  to  transform  the  world  ;  for  it  is  exerted  by  an  intelligence 
which  knows  how  to  turn  it  to  the  best  possible  use.  Man's 
strength  is  relatively  feeble  when  compared  with  that  of  animals. 
For  instance,  it  is  one-seventh  of  a  horse's,  though  a  horse  is  not 
seven  times  heavier,  and  is  certainly  not  seven  times  larger. 

Still,  we  must  say,  that  though  man  has  less  muscular  force  than 
the  animals,  he  has  generally  more  dexterity,  and  this  he  especially 
owes  (as  the  very  name  shows)  to  that  marvellous  organ  we  call 
the  hand. 

Every  physical  labor,  properly  so-called,  must  be  preceded  by  a 
purely  intellectual  labor  which  we  term  "invention"  ;  this  consists 
in  discovering  the  practical  means  of  turning  to  our  ends  the 
forces  we  have  power  over,  and  the  objects  to  which  they  can  be 
applied.  Invention  is  not,  as  might  be  believed,  a  rare  gift  which 
can  only  be  displayed  by  a  few  learned  men  ;  on  the  contrary,  it 
is  intimately  bound  up  with  every  act  of  production.  The  Paris 
knick-knack  maker  who  fabricates  for  the  shops  some  fresh  New 
Year's  Day  toy  at  a  farthing  apiece,  the  joiner  who  tries  to  make 
the  best  use  of  a  plank,  are  also  inventors  in  the  accurate  sense 
of  the  word.  There  is  no  movement  of  a  workman's  arms  or 
fingers,  there  is  no  combination  or  organization  of  labor,  which 
has  not  been  originally  invented  by  some  artisan.  From  this  point 
of  view  we  can  say  that  human  intelligence  is  the  first,  nay,  the 
only  agent  of  production. 

However,  when  once  made,  invention  has  the  power  of  serving 
as  the  basis  of  an  unlimited  number  of  acts  of  production,  or, 
rather,  of  re-production ;  hence  the  difficulty  which  the  legislator 
experiences  in  regulating  and  protecting  the  inventor's  right  of 
property. 

The  words  "  invention "  and  "  discovery "  should  not  be 
confounded,  and,  indeed,  popular  speech  has  well  distinguished 
between  them.  It  is  correct  enough  to  say  that  Christopher 
Columbus  discovered  America,  but  we  should  laugh  if  we  were 
told  that  he  had  invented  it.  Discovery  is  the  revealing  of  the 
existence  of  an  object  which  was  previously  unknown  (such  as  a 


PRODUCTION.  113 

land,  a  substance,  a  star,  or  a  new  property  of  some  already  dis- 
covered body).  Invention  is  the  conceiving  of  some  new  mode 
of  turning  to  account  elements  of  which  we  are  cognizant  and 
over  which  we  have  power.  Thus  discovery  may  be  regarded  as 
the  initial  act  in  the  process  of  production,  the  first  link  of  the 
chain  from  which  all  the  others  are  hung.  Every  land  now 
under  cultivation,  all  the  wealth  that  we  use,  each  force  that  we 
employ,  must  at  some  time  or  other  have  undergone  this  process 
of  discovery. 

III.    What  Kinds  of  Labor  should  be  called  Productive  ? 

Economic  doctrines  on  this  question  of  productive  labor  possess 
a  very  curious  history.  The  title  of  "  productive,"  which  was 
primarily  reserved  for  a  single  class  of  labor,  has  gradually  been 
extended  in  its  application,  and  has  ended  in  being  indiscrimi- 
nately bestowed  on  all  species  of  work. 

The  school  of  the  physiocrats  confined  the  epithet  "produc- 
tive "  to  agricultural  labor  (including  therein,  hunting,  fishing, 
and  mining),  and  denied  it  to  every  class  of  labor,  even  to  manu- 
facture. The  reason  assigned  was,  that  it  is  the  first-named 
industries  alone  that  furnish  the  materials  for  all  wealth,  and  that 
all  other  labor  is  merely  engaged  in  the  working  of  these  materials. 

This  definition  of  the  physiocrats  was  clearly  too  narrow.  Raw 
material,  as  it  is  handed  over  to  us  by  agricultural  labor  or  extrac- 
tive industry,  is  usually  altogether  unfit  for  consumption ;  it  has 
to  undergo  numerous  modifications  which  are  effected  by  manu- 
facturijjg  industry.  Manufacture  is  the  indispensal)le  complement 
of  the  former  labors,  and  without  it  the  process  of  production  is 
as  incomplete  as  a  play  with  the  last  acts  suppressed.  Of  what 
use  would  the  ore  be  at  the  pit's  mouth,  if  it  were  not  to  go 
thence  to  the  forge  or  the  foundry  ?  Of  what  use  would  com  be, 
if  it  had  not  to  pass  through  the  hands  of  the  miller  and  the  baker? 
Were  it  not  for  the  weaver's  labor,  flax  would  be  no  more  useful 
than  the  nettle.     How,  then,  can  we  refuse  to  these  labors  the 


114  PRINCIPLES    OF    POLITICAL    ECONOMY. 

title  of  "  productive  "  ?  for  witliout  tliem  all  these  kinds  of  wealth 
would  be  useless  to  us ;  in  other  words,  would  not  be  wealth  at  all. 

It  is  altogether  a  mistake  to  think  that  agricultural  and  extrac- 
tive industries  create  wealth,  whilst  manufacture  only  transforms 
it.  As  we  have  already  shown,  the  agriculturist  himself  merely 
transforms  the  simple  elements  he  has  borrowed  from  the  soil  and 
from  the  air.  He  makes  corn  from  water,  potassium,  silicon, 
phosphates,  and  nitrogen,  just  as  the  soap-maker  fabricates  his 
soap  from  soda  and  fatty  bodies. 

Hence,  from  Adam  Smith  onwards  no  one  has  hesitate^  to 
include  manufacture  in  productive  labor. 

There  has  been  a  longer  hesitation  as  to  the  labor  of  transport, 
for  the  act  of  transport  does  not  appear  to  effect  any  modification 
in  the  object.  The  bale  of  goods  is  the  same  at  the  station  where 
it  arrives  as  at  the  station  whence  it  came.  That,  it  is  said,  is  a 
characteristic  distinction  from  manufacturing  industry. 

The  drawing  of  such  a  distinction  is  scarcely  philosophical,  for 
every  act  of  displacement  effects  an  essential  modification  in 
bodies ;  indeed,  as  we  have  just  seen,  is  the  only  modification  we 
can  cause  in  matter.  What  we  call  transformation  in  manufac- 
ture is  nothing  but  an  arrangement ;  in  other  words,  a  change  of 
place  of  the  component  parts  of  substances.  If  we  were  to  deem 
a  displacement  not  to  be  a  sufficient  modification  to  be  termed 
productive,  we  should  have  to  refuse  that  appellation  to  extractive 
industries ;  for  what  is  the  miner's  work  save  the  transporting  of 
ore  or  coal  from  the  bottom  of  the  shaft  to  the  surface  of  the 
ground  ?  Now  what  distinction  can  be  established  between  such 
labor  and  the  wagoner's  work  in  taking  this  ore  or  coal  from  the 
pit's  mouth  and  carrying  it  to  the  works,  —  unless  we  assert  that 
displacement  is  productive  when  it  is  exercised  vertically,  but  is 
no  longer  so  when  horizontal  ?  Besides,  it  is  scarcely  necessary  to 
add,  that  just  as  manufacture  is  the  indispensable  complement 
of  the  agricultural  and  extractive  industries,  so,  too,  the  labor  of 
transporting  is  the  requisite  complement  of  its  predecessors. 
What  would  be  the  use  of  stripping  bark  trees  in  Brazilian  forests, 


PRODUCTION.  115 

of  extracting  guano  from  the  Peruvian  islands,  of  hunting  elephants 
for  their  tusks  in  South  Africa,  if  we  had  no  sailors  and  carriers  to 
convey  these  products  to  the  places  where  they  are  to  be  used  ? 
What  profits  it  a  landowner  to  have  the  finest  crop  in  the  world,  if 
the  lack  of  a  road  prevents  him  transporting  it?  It  is  just  as  if  he 
had  no  crop  at  all. 

With  regard  to  coimnercial  industry  the  hesitation  has  been 
even  longer.  For  it  may  be  noted,  that  the  process  of  trade 
reduced  to  its  lowest  terms,  i.e.  to  the  act  of  buying  for  the 
purpose  of  selling  again  (for  that  is  its  legal  meaning),  does  not 
imply  any  creation  of  wealth.  No  doubt  those  who  engage  in  it 
may  make  much  money,  but  that  does  not  add  to  the  general 
wealth ;  in  truth,  we  shall  see  that  the  multiplication  of  business 
men  and  middlemen  may  become  a  veritable  scourge  for  modern 
societies.  Thus,  if  commerce  can  be  classed  among  productive 
labor,  that  can  only  be  done  with  great  reservations. 

On  the  other  hand,  we  must  observe  that  men  of  business  are 
most  usually  occupied  with  the  transport  of  goods,  as  is  the  case 
with  shipowners  who  carry  on  the  export  or  the  import  trade.  In 
a  certain  measure,  too,  merchants  may  be  regarded  as  the  actual 
directors  of  transport  all  the  world  over ;  the  carrying  industry 
only  executes  their  orders.  Moreover,  they  preserve  goods  in  the 
shape  of  stock  in  hand.  They  even  subject  them  to  certain 
modifications :  the  cloth  merchant  cuts  his  strips,  the  grocer 
roasts  his  coffee,  etc.  It  is  through  them  that  the  commodity 
comes  into  the  hands  of  the  consumer,  and  thus  the  cycle  of  pro- 
duction is  closed. 

Finally,  discussion  has  been  keenest  with  regard  to  services 
rendered,  such  as  those  afforded  by  the  liberal  professions ;  for  it 
may  seem  strange  to  call  "  productive  "  the  labor  of  the  surgeon 
who  amputates  a  leg,  or  of  the  executioner  who  cuts  off  a  head. 
However,  this  last  step  has  also  been  taken,  and  now  without 
halting  at  antiquated  and  pedantic  distinctions,  we  have  come  to 
place  under  the  heading  of  productive  labor  all  labor  that  in  any 
vvav  whatever  contributes  to  the  satisfaction  of  the  wants  of  man. 


Il6  .     PRINCIPLES    OF    POLITICAL    ECONOMY. 

It  is  a  logical  consequence  of  the  theory  we  have  expounded, 
that  services  rendered,  as  well  as  material  objects,  sliould  be  placed 
in  the  list  of  articles  of  wealth.  However,  it  is  of  little  importance 
whether  this  new  departure  be  accepted  or  not,  and  if  material 
objects  alone  are  allowed  to  rank  as  wealth.  The  term  "  produc- 
tive "  should  be  taken  in  the  widest  possible  sense.  In  the  social 
organism,  thanks  to  the  law  of  the  division  of  labor,  there  is  such 
a  solidarity  between  the  labors  of  men,  and  they  are  so  closely 
related,  that  it  is  impossible  to  separate  them. 

Take  the  production  of  bread.  We  need  not  hesitate  about 
classing  as  productive  labor  the  respective  toil  of  ploughmen, 
sowers,  reapers,  wagoners,  millers,  and  bakers,  beginning  with 
Triptolemus,  the  legendary  inventor  of  corn,  and  all  his  successors 
who  have  discovered  the  varieties  of  cereals  and  have  invented  the 
rotation  of  crops,  or  the  methods  of  intensive  agriculture. 

But  we  cannot  restrict  ourselves  to  pure  manual  labor.  It  is 
clear  that  the  labor  of  the  farmer  or  of  the  lord  of  the  manor, 
though  he  may  not  himself  have  put  his  hand  to  the  plough,  is 
very  useful  for  the  production  of  corn,  just  as  the  shepherd  joins 
in  the  production  of  wool  though  he  does  not  shear  the  sheep 
himself.  Neither  can  we  ignore  the  work  of  the  engineer  who  has 
prepared  the  plan  of  a  system  of  irrigation,  or  of  the  architect 
who  has  constructed  the  farm-buildings  and  the  barns. 

Must  we  stop  here  ?  We  might ;  but  have  not  the  following 
also  contributed  to  the  production  of  corn,  and  should  not  their 
work,  too,  be  termed  productive  ?  I  refer  to  the  county  police- 
man who  has  frightened  away  robbers,  to  the  public  prosecutor 
who  has  prosecuted  them,  and  to  the  judge  who  has  sentenced 
them  ;  nor  should  I  forget  the  soldier  who  has  protected  the  year's 
crop  from  even  worse  ravagers  ;  viz.,  foreign  armies.  What  shall 
we  say  of  the  labor  of  those  who  have  moulded  the  agriculturist 
and  his  men,  of  the  instructor  who  has  taught  them  their  ideas  of 
agriculture  or  has  put  them  in  the  way  of  obtaining  such  knowl- 
edge, of  the  doctor  who  has  kept  them  in  good  health  ?  Is  it  a 
matter  of  indifference   for  the  production  of  corn  or  any  other 


PRODUCTION.  117 

wealth,  that  the  workers  be  well  taught  and  of  sound  constitution  ? 
Are  we  to  disregard  the  question  as  to  whether  they  are  well  ad- 
ministered and  governed,  are  in  possession  of  order  and  security, 
and  enjoy  the  benefits  of  a  good  government  and  good  laws?  Are 
we  justified  in  putting  aside  the  kinds  of  labor  which  are  the  most 
alien  from  agricultural  pursuits,  those  of  writers,  poets,  and  artists  ? 
Are  we  to  think  that  the  taste  for  agricultural  labors,  and  conse- 
quently the  production  of  corn,  cannot  be  usefully  developed  in  a 
society  by  novelists  who  depict  scenes  of  country  hfe,  or  by  poets 
who  celebrate  the  pleasures  of  rural  occupations  and  teach  us  to 
repeat,  after  the  author  of  the  Georgics, — 

"  Fortunatos  nimium  sua  si  bona  norint 
Agricolce"? 

Where,  then,  are  we  to  stop?  We  see  the  circle  of  productive 
labor  extending  to  infinity,  to  the  farthest  bounds  of  society,  like 
those  concentric  circles  which  spread  on  the  surface  of  the  water 
round  the  centre  we  have  agitated,  and  which  are  lost  in  the  dis- 
tance, without  the  eye  being  able  to  perceive  the  limit  where  they 
stop.  No  doubt  the  various  kinds  of  labor  we  have  just  passed 
under  review  have  not  contributed  to  the  production  of  corn  in 
the  same  way ;  some  have  acted  directly,  some  only  indirectly ; 
but  none  of  them,  beginning  with  the  ploughman's  toil  and  reach- 
ing to  the  occupation  of  the  President  of  the  Republic,  could  be 
suppressed  without  the  cultivation  of  corn  suffering  therefrom. 

Still,  though  we  cannot  make  definite  distinctions  between  these 
various  kinds  of  labor,  yet,  proceeding  from  the  centre  to  the  cir- 
cumference, we  can  establish  a  sort  of  hierarchy  arranged,  not  in 
order  of  dignity,  but  according  to  their  economic  utility. 

The  most  important  for  the  wealth  of  a  country  are  labors  of 
discovery  and  invention ;  then  come  agricultural  pursuits,  next 
manufacture,  after  that  the  labor  of  transport,  and  last  of  all  com- 
merce and  official  employments.  The  fewer  the  people  engaged 
in  these  last  two  kinds  of  labor,  the  better  it  will  be. 

However  elementary  this  classification  may  appear  to  be,  its 


Il8  PRINCIPLES    OF   POLITICAL    ECONOMY, 

exposition  is  not  a  needless  one ;  for  every  day  it  is  utterly  misun- 
derstood by  customs  and  by  laws.  Thus  governments  spend  mil- 
lions on  developing  means  of  transport  without  first  finding  out 
whether  there  is  anything  to  transport ;  and  thus,  too,  the  number 
of  people  engaged  in  retail  trade  or  in  official  employment  in- 
creases every  day,  while  agricultural  pursuits  are  more  and  more 
abandoned. 

IV.    On  Pain  as  a  Factor  of  Labor. 

All  productive  labor  presupposes  a  certain  amount  of  toil,  and 
this  is  a  law  of  supreme  importance  in  political  economy.  Indeed, 
if  labor  was  not  a  toil,  pain  or  difficulty,  all  economic  phenomena 
would  be  other  than  they  now  are.  For  instance,  if  men  worked 
for  pleasure,  there  would  no  longer  be  any  raison  d'etre  for  individ- 
ual property  so  far  as  it  may  be  regarded  as  the  just  recompense 
for  labor  and  the  necessary  stimulus  to  human  activity,  which 
indeed  is  its  principal  basis.  In  that  case  the  most  serious  objec- 
tion that  can  be  brought  against  communism  would  fall  to  the 
ground. 

Fourier,  the  socialist,  perfectly  understood  this :  thus  the  pivot 
he  gave  to  the  future  society  that  he  proposed  to  organize  was 
attractive  labor.  He  asserted  that  labor  was  painful  solely  on 
account  of  a  flaw  in  the  organization  of  our  modern  societies,  and 
he  boasted  in  his  phalanstery  that  he  would  make  labor  attractive 
for  all  men  by  free  choice  of  avocations,  variety  of  occupations, 
shortness  of  tasks,  esprit  de  corps,  emulation,  and  a  hundred  other 
combinations,  some  of  them  ingenious,  some  fantastic. 

Why  not?  it  may  be  said.  Labor,  taken  as  a  whole,  is  only  a 
form  of  human  activity ;  now  activity  has  nothing  painful  about  it. 
To  act  is  to  live ;  it  is  absolute  inaction  which  is  a  torture,  and  so 
cruel  an  one  that  when  it  is  too  prolonged  in  solitary  confinement, 
it  will  kill  the  sufferer  or  turn  him  mad.  There  is  no  essential 
difference  between  labor  and  a  number  of  exercises  which  are 
regarded  as  pleasures,  though  they  often  require  an  expenditure  of 


PRODUCTION.  119 

Strength  higher  than  that  needed  by  labor ;  e.g.  mountaineering, 
boating,  gardening,  even  dancing.  If  Candide  took  his  pleasure 
in  cultivating  his  garden,  and  Louis  XVI  his  in  making  locks,  why 
cannot  all  men  reach  this  stage  of  working  for  the  love  of  it? 

The  answer  is,  that  man  only  takes  pleasure  in  action  in  so  far 
as  he  can  obtain  satisfaction  from  the  mere  exercise  of  this  activity, 
in  so  far  as  this  exercise  is  a  natural  function.  But  when  this 
activity  is  seen  in  the  light  of  the  condition  of  an  ulterior  enjoyment, 
as  the  effort  which  he  must  make  to  achieve  an  aim  fixed  before- 
hand, —  and  that  is  the  very  essence  of  labor,  —  then  it  becomes 
painful.  Between  a  boating  man  who  rows  for  pleasure  and  a 
boatman  who  rows  to  earn  his  living,  between  a  tourist  who  climbs 
a  mountain  and  the  guide  who  accompanies  him,  between  a  girl 
who  spends  her  evening  at  a  ball  and  the  dancer  who  appears  in  a 
ballet,  I  see  only  one  difference  :  the  first  in  each  pair  row,  climb, 
or  dance  solely  to  row,  climb,  or  dance ;  the  others  do  so  to  earn 
their  living. 

This  difference,  though  a  purely  subjective  one,  causes  the  same 
modes  of  activity  to  be  regarded  as  a  pleasure  by  the  former,  as  a 
toil  by  the  latter.  The  man  who  follows  a  road  only  for  a  walk 
may  take  pleasure  in  it,  if  it  presents  any  attractions,  but  he  who 
passes  over  it  night  and  morning  only  to  reach  a  fixed  point  always 
finds  it  long  and  wearisome. 

Now  for  almost  all  mankind  labor  is  a  path  upon  which  they 
enter  for  the  necessity  of  living,  and  therefore,  in  accordance  with 
the  old  curse  in  Genesis,  they  have  labored  "  in  the  sweat  of  their 
face."  Doubtless  even  the  humblest  labor  has  its  joys,  the  joys 
of  duty  fulfilled  and  of  a  natural  law  voluntarily  accepted ;  but 
these  austere  pleasures  will  never  be  felt  except  by  a  few  chosen 
spirits,  and  we  should  fall  into  the  most  chimerical  optimism  if 
we  flattered  ourselves  with  the  hope  of  one  day  seeing  all  men 
labor  solely  for  pleasure  ;  i.e.  without  requiring  the  stimulus  of  self- 
interest  or  the  orders  of  compulsion. 

In  order,  then,  to  induce  man  to  work  and  to  counterbalance 
the  feehng  of  pain  which  is  occasioned  by  all  labor,  a  higher  force 


120  PRINCIPLES    OF    POLITICAL    ECONOMY. 

is  needed  :  for  the  slave  this  is  the  scourge,  for  the  free  laborer  it  is 
the  desire  of  satisfying  his  wants.  Thus  every  man  who  labors  is 
the  prey  to  two  conflicting  feelings :  on  the  one  hand,  the  desire 
to  satisfy  some  want  or  to  obtain  some  enjoyment ;  on  the  other, 
the  wish  to  escape  the  pain  caused  by  his  work.  According  as 
one  or  other  of  these  desires  turns  the  scale,  he  will  continue  or 
will  abandon  his  labor. 

As  Stanley  Jevons  ingeniously  observes,  the  pain  endured  by 
the  worker  incessantly  increases  in  proportion  to  the  prolongation 
of  the  labor,  while  the  pleasure  he  derives  from  it  constantly  di- 
minishes in  proportion  as  his  most  pressing  wants  begin  to  be 
satisfied.  Thus  out  of  the  two  desires,  the  one  requiring  him  to 
work,  the  other  inviting  him  to  stop,  it  is  clear  that  the  latter  will 
sooner  or  later  gain  the  day.  Take  a  laborer  drawing  buckets  of 
water  from  a  well.  Fatigue  increases  with  each  fresh  bucket  he 
has  to  draw ;  on  the  other  hand,  the  utility  of  each  bucket 
decreases ;  for  if  the  first  was  necessary  for  drinking  and  cooking 
purposes,  the  second  will  only  serve  for  watering  cattle,  the  third 
for  cleaning  purposes,  the  fourth  for  watering  the  garden,  the  fifth 
for  sprinkling  the  road,  etc.  At  what  number  is  he  to  stop  ?  That 
depends  partly  on  his  power  of  supporting  fatigue,  but  chiefly  on 
the  scale  of  his  wants.  The  Esquimau,  who  only  uses  water  to 
quench  his  thirst,  will  stop  at  the  first  or  second  pail ;  the  Dutch- 
man, who  cleanses  his  house  right  up  to  the  roof,  may  have  to 
draw  fifty  buckets  before  he  thinks  he  is  sufficiently  provided  with 
water. 

Productive  activity  can  be  greatly  increased  if  the  stimulus  of 
future  requirements  is  added  to  that  of  present  and  actual  needs ; 
if,  for  example,  in  a  land  where  water  is  scarce,  the  worker  thinks 
of  filling  a  cistern  in  readiness  for  the  days  of  drought.  But  this 
faculty  of  weighing  together  an  immediate  pain  and  a  distant 
satisfaction  —  a  faculty  which  is  really  called  foresight  —  belongs 
only  to  civilized  races.  It  is  characteristic  of  the  French  peasants, 
a  stock  which  is  laborious  though  frugal ;  a  fact  which  shows  that 
they  labor  less  to  satisfy  their  present  needs,  which  are  very  few, 


PRODUCTION.  121 

than  to  provide  for  future  wants,  whether  those  of  old  age  or  of 
their  families. 

V.    On  Time  as  a  Factor  of  Labor. 

If  all  labor  involves  a  certain  amount  of  pain,  it  also  requires  a 
certain  expenditure  of  time.  We  have  already  seen  that  this  is 
one  of  the  essential  conditions  of  all  production,  a  condition  which 
is  absolutely  universal ;  for  Nature  herself,  as  far  as  she  is  associated 
with  man  in  the  labor  of  production,  is  equally  subject  to  it;  there 
must  be  long  months  of  waiting  before  the  seed,  slumbering  in  the 
furrow,  can  become  the  ear,  and  long  years  before  the  acorn 
develops  into  the  oak. 

Between  the  moment  when  labor  begins  and  the  date  when  it 
gives  the  expected  results,  there  is  a  more  or  less  long  lapse  of 
time ;  but  we  may  hold  it  to  be  a  general  law,  that  the  longer  this 
period  is,  the  more  productive  the  work  should  be.  It  may  be 
short  (a  few  hours  are  enough)  for  labors  which  enable  man  to 
live  from  day  to  day,  from  hand  to  mouth,  such  as  hunting,  fishing, 
or  the  plucking  of  wild  fruits ;  but  for  agricultural  works,  large 
industrial  enterprises,  or  those  engineering  achievements  which 
do  honor  to  our  time,  such  as  mines,  artesian  wells,  railways,  tun- 
nels, canals,  —  for  such  as  these  the  requisite  time  becomes 
enormous  and  proportionate  to  the  hugeness  of  the  results.^  How 
many  years  will  go  by  between  the  first  stroke  of  the  pickaxe  on 
the  Isthmus  of  Panama  and  the  passage  of  the  first  ship  through 
the  proposed  canal? 

This  condition  of  all  productive  undertakings  is,  as  we  shall  see, 
one  of  the  very  chief  causes  of  the  importance  of  capital  and  of 
the  privileged  position  of  the  holders  of  capital.  Indeed,  as  he 
must  live  while  he  is  waiting  for  the  result  of  his  work,  the  laborer 
can  attempt  nothing  without  the  aid  of  certain  advances,  and  these 
are  supplied  by  the  capitalist. 


122  PRINCIPLES    OF    POLITICAL    ECONOMY. 

It  is  not  enough  to  state  that  time  is  an  indispensable  factor  of 
all  production ;  we  must  add,  further,  that  man  has  only  a  hmited 
amount  of  time  to  dispose  of,  not  only  because  his  life  is  short,  but 
because  numerous  deductions  have  to  be  made  from  that.  We 
must  take  into  consideration  the  following  : 

Firstly.  Man  cannot  work  every  hour  in  the  day.  We  must 
certainly  deduct  time  for  sleep  and  for  meals,  and  experience  has 
proved  that  nothing  is  gained  from  the  point  of  view  of  production 
by  extending  the  duration  of  the  working-day.  Custom  and  even 
law  fix  this  at  ten  or  twelve  hours,  and  the  famous  formula  of  the 
"  Three  Eights  "  now  tends  to  a  general  reduction  to  eight  hours, 
which  would  give  only  a  third  of  the  day  for  labor.  Compare 
with  this  the  refrain  of  the  old  English  song,  — 

"  Eight  hours  to  work,  eight  hours  to  play, 
Eight  hours  to  sleep,  eight  shillings  a  day," 

which  has  been  brought  into  fashion  again  by  the  recent  dis- 
cussions as  to  the  limitation  of  the  hours  of  labor.  As  a  matter 
of  fact,  if  we  assign  a  third  of  the  day  for  sleep,  a  third  for  labor, 
that  is  to  say,  for  the  requirements  of  economics,  and  the  remain- 
ing third  for  the  satisfaction  of  wants  of  another  kind,  but  which 
are  no  less  important  for  man's  development,  viz.  the  duties  de- 
manded by  family  life,  social  intercourse,  education,  physical  and 
intellectual  recreation,  —  if  such  a  portioning  out  of  time  is  to  be 
the  normal  one,  there  will  obviously.be  no  more  space  left  for 
labor. 

Secondly.  Man  cannot  work  every  day  in  the  year,  and  there  is 
no  country  in  which  there  are  not  a  certain  number  of  holidays. 
England  and  America  rigorously  obey  the  order  to  observe  the 
Sabbath ;  the  English,  moreover,  take  Saturday  afternoon ;  all 
this,  with  some  other  holidays  thrown  in,-  amounts  to  rather  more 
than  eighty  days  a  year.  Russia,  with  its  numerous  saints'  days, 
has  even  more.  Countries  which,  like  France,  pride  themselves  in 
being  above  the  sabbatical  superstition,  gain  nothing  by  that ;  for 
if  they  do  not  keep  Sunday  as  a  day  of  rest,  they  compensate  for 


PRODUCTION.  123 

that  by  taking  Monday,  which  is  observed  as  a  holiday  in  many 
French  trades.' 

It  is  rare  for  even  the  most  industrious  of  Parisian  workmen  to 
reach  an  average  of  300  days'  labor  a  year.  Moreover,  days  of 
illness  must  be  reckoned  for.  Here,  again,  we  must  remark  that 
to  increase  the  number  of  working-days  and  restrict  the  days  of 
rest,  would  only  result  in  a  useless  expenditure  of  man's  productive 
strength. 

Thirdly.  Man  cannot  work/^r  all  the  years  of  his  life  ;  we  have 
in  all  cases  to  deduct  the  years  of  infancy,  and  also  those  of  old  age 
wherever  that  state  is  reached.  Let  us  suppose  that  the  normal 
length  of  life  is  70  years ;  let  us  suppose,  again,  that  the  period  of 
productive  labor  begins  at  18  and  ends  at  60, — both  estimates 
being  certainly  exaggerated ;  then,  even  granting  such  conditions, 
we  should  have  to  subtract  28  years  out  of  the  70,  or  40  per  cent. 

It  is  clear  that  the  power  of  productive  labor  of  any  individual 
depends  on  the  relation  between  the  two  periods  of  his  life  :  on 
the  one  hand,  the  unproductive  period,  with  its  two  sections, 
childhood  and  old  age  ;  on  the  other  hand,  the  productive  period. 
While  really  young  or  really  old,  an  individual  not  only  does  not 
produce,  but  also  consumes.  From  a  purely  economical  point  of 
view,  it  would  be  by  far  the  best  for  each  man  to  die  just  at  the 
end  of  his  productive,  and  before  entering  on  his  unproductive, 
period.  If  he  dies  before  this,  so  much  is  stolen  from  his  years  of 
production  ;  if  he  dies  after  this,  his  unproductive  years  are  added 
to.  It  is  in  accordance  with  this  line  of  argument  that  some  peo- 
ples slay  their  graybeards.  In  all  countries,  without  exception, 
the  average  length  of  man's  life  is  far  from  reaching  the  above- 
mentioned  figure,  viz.  seventy.  It  usually  varies  between  forty 
and  fifty  years  as  the  maximum.  Thus  the  time  during  which  the 
productive  powers  are  exercised  represents  a  half  or  at  the  most 
three-fifths  of  a  man's  life. 


^  This  practice,  which  the  French  term  "feter  le  lundi,"  is  represented  by 
the  "  St.  Monday  "  of  English  compositors.  —  Translator's  Note. 


124  PRINCIPLES    OF    POLITICAL    ECONOMY. 

From  this  point  of  view,  the  most  favored  country  is  that  which 
can  show  the  largest  number  of  men  between  the  ages  of  eighteen 
and  sixty,  or  in  the  period  of  "useful  life,"  as  the  saying  is.  Thus 
regarded,  France  is  not  unsatisfactorily  situated.  ■  This  distribu- 
tion of  ages  depends  in  particular  on  the  average  duration  of  life 
in  any  society.  The  longer  that  is,  the  greater  the  chance  of  a 
large  number  of  adults.  Yet  highly  erroneous  conclusions  might 
be  reached  from  following  too  closely  this  line  of  argument.  If 
in  one  country  half  the  children  died  unweaned,  and  in  another 
country  the  same  number  of  children  died  at  the  age  of  fifteen, 
the  latter  country  would  certainly  possess  a  higher  average  of 
duration  of  life,  but  still  would  be  far  worse  off  from  a  productive 
standpoint.  In  it  the  proportion  of  useless  mouths  would  be 
much  greater.  Both  on  economical  and  even  sentimental  grounds, 
it  would  be  better  that  every  child  lost  at  the  age  of  fifteen  had 
ceased  to  live  when  six  months  old.^ 

To  recapitulate  :  Let  us  take  a  man  who  has  worked  from  the 
age  of  1 8  to  60  at  the  rate  of  300  days  a  year  and  eight  hours  a 
day.  When  he  reaches  the  age  of  70,  and  looks  back  on  the  past, 
he  will  surely  be  able  to  say  that  he  has  spent  his  life  well,  yet 
he  will  have  worked  only  ioo,Soo  hours  out  of  the  613,200  he  has 
lived,  or  rather  less  than  a  sixth. 

After  these  considerations,  it  is  not  surprising  that  man  seeks  to 
economize  time,  and  that  the  most  active  peoples  of  our  day  have 
taken  as  their  motto,  "  Time  is  money." 

^  This  argument  seems  to  prove  too  much.  There  is  no  reason  for  stopping 
at  six  months.     yuTj  (pvvai  Thy  diravTa  viKa  \6yoy.  —  J.  B. 


CHAPTER   III. 
CAPITAL. 

I.    On  the  Part  played  in  Production  by  Capital. 

It  would  appear  that  man's  labor,  aided  by  nature,  ought  to  be 
sufficient  for  production.  Animals,  sure  enough,  have  to  meet  the 
necessities  of  their  existence  by  their  own  activity  and  the  objects 
supplied  to  them  by  nature.  Yet  observation  shows  that  if  man's 
labor  and  nature  are  left  alone  face  to  face,  they  are  extremely 
likely  to  remain  eternally  sterile.  For  human  industry  something 
more  is  needed ;  to  wit,  a  certain  amount  of  wealth  which  has 
been  previously  acquired. 

Numerous  authors  have  told  the  stories  of  men  of  the  Robinson 
Crusoe  type,  and  have  striven  to  show  us  man  grappling,  unaided, 
with  the  necessities  of  existence  ;  but  there  is  not  one  of  them 
who  has  neglected  to  endow  his  hero  with  some  tools  or  pro- 
visions which  are  usually  saved  from  a  shipwreck.  These  writers 
know  well  enough  that  without  this  precaution  the  story  would 
have  to  stop  after  its  second  page,  for  their  hero's  life  could  last 
no  longer.  What  was  it  that  these  Crusoes  lacked?  Had  they 
not  the  resources  of  their  labor  and  the  treasures  of  a  fruitful 
though  virgin  nature  ?  Yes ;  but  there  was  still  something  want- 
ing, and  as  they  could  not  do  without  it,  the  writer  had  to  see  to 
their  obtaining  it.  What  was  it  ?  Why,  pre-existing  wealth,  capi- 
tal.    This  is  the  name  given  to  the  third  factor  of  production. 

But  we  need  not  go  so  far  afield  as  Robinson  Crusoe  to  become 
convinced  of  the  utility  of  capital.  The  heart  of  our  civilized 
societies  presents  situations  similar  to  his.  In  present-day  com- 
munities there  is  no  more  difficult  problem  than  the  acquisition  of 
anything  when  the  aspirant  possesses  nothing.     Take  one  of  the 

125 


126  PRINCIPLES   OF    POLITICAL    ECONOMY. 

proletariat,  a  man  without  any  means, — what  is  he  to  do  to  produce 
what  is  necessary  for  him  to  live  on,  to  earn  his  living,  as  we  say  ? 
A  little  reflection  will  show  that  there  is  no  kind  of  productive 
industry  that  he  can  adopt,  not  even  the  poacher's  occupation,  for 
that  would  need  a  gun,  or  at  any  rate,  snares ;  nor  a  ragpicker's, 
for  that  would  require  a  hook  and  a  basket.  Thus  he  would  be 
as  wretched,  as  helpless,  and  as  surely  destined  to  die  of  hunger  as 
a  Crusoe  who  had  saved  nothing  from  his  shipwreck,  were  it  not 
that  the  social  organization  came  to  his  assistance  by  supplying 
him  with  the  means  of  producing  something  by  the  aid  of  wealth 
previously  acquired  by  others.  This  wealth  he  can  obtain  in 
various  ways,  either  by  contracting  loans  (a  highly  improbable 
proceeding,  for  only  the  rich  find  lenders),  or  by  contracting  for 
wages,  putting  himself  in  the  pay  of  an  employer,  who  on  certain 
conditions  supplies  him  with  raw  material  and  the  implements 
necessary  for  production.  Such  is  the  usual  position  of  the  pro- 
letariat. Some  socialists  appear  to  think  that  such  a  state  of  things 
is  abnormal,  and  is  due  to  the  defective  organization  of  society. 
The  case  is  quite  otherwise.  This  quasi-impossibility  of  acquir- 
ing new  wealth  without  the  aid  of  pre-existing  wealth  is  a  natural 
law,  which  is  the  same  for  the  savage  as  for  the  civilized  man,  the 
same  in  prehistoric  times  as  it  is  now. 

Yet  however  great  be  the  importance  of  this  third  factor  of 
production,  it  is  only  the  product  of  nature  and  of  labor.  Though 
nowadays  it  has  acquired  such  weight  as  to  rank  equally  with  its 
fellow-workers,  and  sometimes  even  to  take  precedence  over 
them,  still  we  must  not  forget  that  logically,  historically,  and 
genetically,  capital  proceeds  from  the  two  prime  factors.  It  is 
not  an  agetit  in  production,  as  is  too  often  said,  but  an  instrument, 
an  auxiliary,  whose  aid,  it  is  true,  man  can  no  longer  dispense 
with.  Once  upon  a  time,  however,  he  was  obliged  to  do  without 
it.  It  is  obvious  that  the  first  capital  of  the  human  race  must 
have  been  formed  without  the  help  of  any  other  capital.  Man 
was  once  upon  this  earth  as  resourcelcss  as  Crusoe  on  his  island, 
and   had  to  solve  the   difficult  problem   of  producing  the  first 


PRODUCTION.  127 

wealth  unaided  by  any  pre-existing  wealth.  That  no  doubt  was  an 
anxious  moment  to  go  through,  analogous  to  the  overcoming  of  the 
dead-stop  of  a  locomotive.  With  his  hands  alone  man  had  to  set 
a-going  the  huge  wheel  of  human  industry.  But,  when  it  was 
once  in  motion,  the  most  difficult  part  of  the  task  was  done,  and 
henceforward  the  slightest  impulse  has  been  enough  to  give  it  a 
velocity  which  i^  ceaselessly  accelerated. 

Yes ;  in  the  history  of  mankind  there  has  been  a  terrible  crisis, 
a  long  and  agonizing  parturition;  but  after  that,  wealth  once 
engendered  and  conceived  has  only  had  to  develop  and  grow 
almost  of  itself.  The  first,  nay  the  most  shapeless  of  all  created 
wealth,  were  it  but  the  flint  split  in  the  fire  of  the  anthropoid  apes, 
immediately  served  as  a  means  of  making  new  wealth  under 
slightly  more  favorable  conditions,  and  these  in  their  turn  have 
served  to  create  others,  the  facility  of  production  increasing,  so  to 
speak,  in  a  geometrical  progression,  in  proportion  to  the  amount 
of  wealth  already  acquired.  But  we  know  that  a  geometrical 
progression,  though  growing  with  a  dazing  rapidity  after  having 
reached  a  certain  point,  increases  terribly  slowly  during  its  first 
terms.  Our  modern  societies,  then,  who,  living  on  the  accumulated 
wealth  of  a  thousand  generations,  make  almost  a  jest  of  multiply- 
ing wealth  in  all  its  shapes,  ought  not  to  forget  how  slow  and  per- 
ilous was  the  earliest  accumulation  of  the  first  wealth  ;  they  should 
think,  too,  of  the  many  centuries  through  which  the  first  human 
societies  had  to  pass,  through  the  dim  ages  of  hewn  stone  and  of 
polished  stone,  before  they  could  put  together  their  first  stock  of 
capital.  Many  peoples,  no  doubt,  miserably  perished  while  thread- 
ing that  terrible  gorge  ;  it  was  reserved  only  for  a  few  picked  races 
to  effect  a  passage  successfully  and  reach  the  rank  of  capitalist 
societies.     Of  them  we  may  say  ad  augusta  per  angusta  ! 

11.    The  Meaning  of  the  Productivity  of  Capital. 

As  a  general  rule  the  part  played  by  capital  in  production  is 
not  accurately  understood. 


128  PRINCIPLES    OF    POLITICAL    ECONOMY. 

People  imagine  that  all  capital  yields  a  revenue  in  the  same 
manner  as  a  tree  bears  fruit  or  as  a  hen  lays  eggs  ;  i.e.  that  the  rev- 
enue is  a  product  made  exclusively  by  capital,  and  then  possessing 
a  separate  existence.  What  largely  aids  in  the  propagation  of 
this  false  notion  is  the  fact  that  the  greater  part  of  capital  is  seen 
by  us  in  the  shape  of  government  securities,  shares,  or  debentures, 
from  which,  according  to  the  customary  formula,  coupons  are  de- 
tached which  stand  for  the  revenue.  For  six  months,  three  months, 
or  a  year,  according  to  the  nature  of  the  stock,  the  coupon  grows ; 
when  the  day  of  payment  comes,  it  is  ripe  and  can  be  detached. 

Furthermore,  just  as  after  a  fruit  or  a  seed  has  been  gathered, 
it  can  be  sown  again,  and  a  fresh  plant  be  formed  to  bear  more 
fruit,  just  as  after  an  egg  has  been  laid  it  can  be  put  under  a  sit- 
ting hen,  and  a  chick  be  hatched  in  its  turn  to  lay  more  eggs,  — 
so  by  investing  this  coupon  at  interest  a  new  capital  can  be  formed 
which  will  yield  new  dividend  coupons  for  interest ;  in  this  manner 
men  imagine  that  they  see  capital  growing  and  reproducing  itself 
in  accordance  with  the  same  laws  as  regulate  the  reproduction  of 
the  species  of  the  vegetable  and  animal  kingdoms.  But  the  law 
of  compound  interest  is  wonderful  in  quite  another  fashion  than 
the  increase  of  herrings  or  of  mushrooms,  which  is  so  often  quoted 
with  reference  to  the  theories  of  Malthus  and  Darwin.  A  mere 
farthing  put  out  at  compound  interest  on  the  first  day  of  the 
Christian  Era  would  have  yielded  by  now  a  value  equal  to  that  of 
some  thousand  millions  of  globes  of  sohd  gold  of  the  volume  of 
our  earth  :  the  example  has  become  classic. 

We  must  pack  off  to  limbo  all  this  phantasmagoria  which  so 
strongly  and  so  naturally  stirs  the  bile  of  the  socialists.  It  is  all 
pure  moonshine,  this  attribution  to  capital  of  some  productive  and 
mysterious  power  peculiar  to  itself  alone  ;  this  generative  faculty 
is  a  mere  figment.  Whatever  the  popular  saying  may  assert, 
money  bears  no  children  ;  ^  no  more  does  capital.     Not  only  has 

^  We  may  compare  with  this  the  saying  of  Carlyle :  "  Were  a  pair  of  breeches 
ever  known  to  beget  a  son?"  (^Life  in  London,  I,  193,  letter  to  Sterling,  on 
theChurch.)  — J.  B. 


PRODUCTION.  I2g 

a  bag  of  gold  pieces  never  produced  a  gold  coin,  as  Aristotle 
observed  long  ago ;  but  a  bale  of  wool  or  a  ton  of  iron  has  never 
borne  a  flock  of  wool  or  an  atom  of  iron.  If  sheep  do  reproduce 
other  sheep,  as  Bentham  said,  imagining  that  he  refuted  Aristotle 
by  saying  so,  it  is  not  because  sheep  are  capital,  but  merely 
because  they  are  sheep;  for  nature  has  endowed  living  beings 
with  the  power,  never  enjoyed  by  capital,  of  reproducing  individ- 
uals similar  to  themselves.  But  capital  is  dead  matter,  and  is 
absolutely  sterile ;  it  enables  labor  to  produce,  but  of  itself  pro- 
duces not  a  jot.  Therefore  all  that  men  call  the  revenue,  or  the 
product  of  capital,  is,  in  reality,  only  the  product  of  labor. 

The  illusion  is  caused  by  the  sight  of  many  people  living  on 
their  ificome  without  working,  and  even  rapidly  increasing  their 
fortune.  We  ask,  Whence  does  this  income  spring?  It  is  cer- 
tainly not  the  product  of  their  labor,  for  they  are  engaged  in  no 
industry  or  occupation ;  nor  is  it  from  any  natural  agency,  for  on 
the  terms  of  the  hypothesis  they  are  not  landowners.  Can  it  not, 
then,  perhaps,  proceed  from  capital  itself  which  would  thus  spon- 
taneously produce  it?  In  reality,  this  income  is  altogether  the 
product  of  labor,  of  labor  which  is  not  seen,  but  can  be  readily 
traced  if  well  sought  for ;  it  is  the  labor  of  those  who  have  bor- 
rowed the  capital  of  the  fundholders  and  have  employed  it  pro- 
ductively. The  interest  coupons  of  colliery  shares  or  debentures 
in  coal  mines  represent  the  value  of  tons  of  coal  extracted  by  the 
labor  of  miners,  and  the  coupons  of  railway  shares  or  debentures 
stand  for  the  results  of  the  joint  labor  of  all  who  have  co-operated 
in  the  transport  of  commodities.  It  may  come  to  pass  that  capi- 
tal, after  reaching  the  hands  of  the  borrower,  has  been  wasted  or 
unproductively  consumed  ;  yet  in  that  case  the  interest  received 
by  the  lender  represents  the  product  of  some  labor,  if  not  that 
of  the  borrower,  at  least  that  of  some  third  party.  For  instance, 
the  coupons  of  government  bonds  and  securities  do  not  betoken 
wealth  produced  by  the  laborer  or  the  industry  of  the  State,  for 
the  State  does  not  produce,  and  is  wont  to  spend  unproductively 
most  of  the  capital  lent  it ;    no  !    these  coupons  stand  for  the 


130  PRINCIPLES    OF    POLITICAL    ECONOMY. 

product  of  the  labor  of  all  citizens,  which  in  the  shape  of  taxes 
has  been  yearly  poured  into  the  treasury  chests,  and  has  thence 
passed  into  the  hands  of  stockholders. 

Thus  what  we  wanted  to  prove  stands  thus  :  the  receipt  of  a 
fixed  income  is  simply  the  levying  of  a  quota  on  the  product  of 
some  one's  labor,  a  levy  which  may  perhaps  be  justified  by  the 
assistance  capital  has  afforded  labor.  But  that  is  not  the  point  in 
question. 

III.     The  Distinction  between  Wealth  which  is  Capital  and 
Wealth  which  is  not. 

The  idea  of  capital  is  clear  enough  to  us  all.  In  looking  over 
our  property  we  at  once  perceive  that  it  can  be  divided  into  two 
classes  of  goods.  Those  in  the  first  division  are  destined  to  ob- 
tain for  us  in  a  direct  manner  some  enjoyment  or  some  satisfac- 
tion ;  e.g.  food,  clothing,  dwelling-houses,  ornaments,  ridmg-horses, 
pleasure  parks,  pocket-money.  The  second  category  comprises 
objects  whence  we  obtain  an  income ;  such  as  farms,  places  of 
business,  docketed  securities,  factories,  machines,  tools,  stock  in 
trade.  We  make  use  of  the  former  for  our  personal  ends,  or  for 
our  family  requirements  ;  from  the  latter  we  try  to  get  profit.  For 
this  last-named  category  of  wealth  we  reserve  the  name  '* capital." 
This  distinction  between  wealth  which  is  capital  and  wealth  which 
is  not  appears  to  be  very  simple.  But  when  we  look  at  it  closer, 
we  find  that  it  bristles  with  difficulties,  so  that  the  definition  of 
capital  presents  one  of  the  most  arduous  problems  in  political 
economy. 

We  must  begin  by  remarking  that  a  great  number  of  objects 
which  have  different  properties,  and  therefore  varied  utilities,  can 
figure  equally  well  under  either  of  the  two  classes,  according  to 
the  use  to  be  made  of  them.  Thus  the  determination  whether  an 
object  is,  or  is  not,  to  rank  as  capital  often  depends  far  less  on  the 
object's  nature  than  on  its  destination. 

A  diamond  is  capital  when  used  by  a  glazier  for  cutting  panes 


PRODUCTION. 


131 


of  glass ;  it  is  not  capital  when  set  in  a  ring  or  an  earring.  In  the 
first  case  it  is  employed  on  account  of  its  hardness  ;  in  the  second 
because  of  its  brilliancy.  An  egg  is  capital  when  given  to  a  hen  to 
hatch  for  the  reproduction  of  chickens  ;  it  is  not  so  when  put  into 
a  frying-pan  to  make  an  omelet.  In  the  one  case  we  use  the 
life-giving  power  which  it  contains  in  the  germ  state ;  in  the  other 
we  only  avail  ourselves  of  the  nutritious  matter  it  is  composed  of. 
Coal  is  capital  when  thrown  into  the  furnace  of  a  steam-engine, 
for  the  utilization  of  the  motive  force  it  contains  in  the  latent 
state ;  it  is  not  capital  when  stirred  on  a  hearth-grate  merely  for 
the  sake  of  giving  us  warmth.  There  is  no  need  to  give  further 
instances  of  these  contrasts,  which  might  be  indefinitely  multi- 
plied. We  might  almost  say  that  there  is  no  product  which  can- 
not, somehow  or  other,  be  applied  for  a  twofold  end. 

This  is  particularly  the  case  with  a  highly  important  class  of 
products  :  all  those  which  under  the  shape  of  victuals,  clothing, 
shelter,  or  any  sort  of  provisions,  tend  to  support  man's  produc- 
tive strength.  These  also  are  of  twofold  application,  and  accord- 
ing to  circumstances  are  or  are  not  capital.  For  the  laboring 
man,  food  is  surely  no  less  indispensable  for  the  act  of  production 
than  are  tools  or  raw  material ;  the  nitrogen  and  the  carbon  (which 
he  consumes  as  meat  or  as  bread)  play  just  the  same  part  as  the 
coal  which  is  burned  in  a  steam-engine,  and  are  themselves  trans- 
formed into  muscular  force.  Therefore  all  food,  when  regarded 
as  victuals,  stored  for  future  use,  is  placed  by  most  economists 
under  the  head  of  capital.  On  the  other  hand,  has  any  one  dining 
at  a  restaurant  or  in  the  bosom  of  his  family  ever  regarded  the 
dishes  appearing  during  the  course  of  the  meal,  were  they  even 
in  the  shape  of  tinned  meats,  as  implements  of  production  and  as 
fuel  for  his  bodily  mechanism?  No  !  ne  only  desires  them  to 
appease  his  hunger  or  to  tickle  his  palate. 

Stanley  Jevons  asserts  that  stores  of  food  are  typical  capital, 
and  are  its  essential  and  primordial  manifestations  whence  aii  the 
other  forms  have  sprung.  Indeed,  his  premise  is,  that  the  true 
function  of  capital  is  to  support  the  worker  while  waiting  for  the 


132  PRINCIPLES    OF    POLITICAL    ECONOMY. 

moment  when  his  labor  can  give  good  results.  This  definition  of 
the  function  of  capital  necessarily  requires  it  to  exist  under  the 
shape  of  means  of  subsistence,  of  advances.  Of  these,  all  tools, 
machines,  railways,  etc.,  would  be  only  derivative  forms,  for  their 
production  takes  some  time,  perhaps  a  considerable  period ;  and 
hence  they  must  have  required  a  previous  amount  of  advances  in 
the  shape  of  stores  of  food.  It  is  to  this  primary  form,  therefore, 
that  we  have  always  to  return. 

The  simplicity  and  elegance  of  this  theory  make  it  attractive. 
Nevertheless,  though  we  have  previously  expounded  and  defended 
it  in  \ht  Journal  des  Econo?nistes,  October,  1881,  we  now  think 
that  it  is  rather  too  exclusive.  Time  certainly  forms  one  of  the 
essential  conditions  of,  or,  say,  a  limit  to,  every  act  of  production. 
(We  have  already  dwelt  on  this  fact.)  Still,  it  does  not  seem 
correct  to  draw  from  this  the  conclusion  that  all  productive  labor 
necessarily  demands  a  certain  advance  in  the  shape  of  food. 
Man  did  not  put  off  entering  on  agricultural  pursuits  till  he  had 
stored  up  provisions  to  last  for  a  year ;  he  had  sown  and  tilled  the 
ground  in  the  interval  between  his  hunting  expeditions.  Before 
attempting  to  pierce  the  Isthmus  of  Panama,  the  Company  did 
not  amuse  themselves  with  heaping  together  eatables  to  feed  an 
army  of  laborers  for  eight  or  ten  years.  They  had  to  live  on  the 
supplies  {nxrn'ih.ed  pari  passu  by  the  labor  of  the  rest  of  mankind. 
Nothing,  either  in  primitive  or  in  civilized  societies,  resembles 
these  vast  hoardings  of  food  which  Stanley  Jevons  regards  as 
capital  par  excellence  ;  on  the  contrary,  the  whole  of  the  provisions 
of  a  country  is  produced  day  by  day.  Besides,  it  is  not  our 
opinion  that  the  only  function  of  capital  is  to  maintain  the  worker 
till  his  labor  gives  actual  results.  The  flint  picked  up  and  cut  by 
quaternary  man,  the  ox  yoked  to  the  plough  by  the  first  agricul- 
turist, certainly  did  not  fulfil  that  function,  but  nevertheless  they 
were  decidedly  capital.* 

1  See  Dr.  BiJhm-Bawerk,  Knpital-Zins,  Vol.  II,  Bks.  iii,  iv,  ii,  D,  pp. 
337  ^^Q-  (^Smart,  pp.  319  seq.),  compared  with  Bks.  i,  iii,  61  (^Smari,  p. 
S7).-J.B. 


PRODUCTION.  133 

Another  distinction  which  is  often  employed  in  popular  speech 
has  been  adopted  by  Professor  Walras  (as  it  was  by  his  father),  — • 
the  distinction  between  what  is  lasting  and  what  is  consumed  on 
the  first  time  of  using.  From  this  point  of  view  we  should  reckon 
under  the  head  of  capital  heavy  family  furniture  and  jewels.  This 
criticism  can  hardly  be  deemed  scientific ;  were  it  adopted,  we 
should  have  to  erase  from  the  list  of  capital  coal,  which  is  con- 
sumed on  the  first  time  of  using,  and  is  certainly  the  typical  capital 
used  by  modern  industry,  and  the  place  of  honor  would  be  filled 
by  the  great  Pyramid  of  Egypt,  whose  only  use  has  been  to  preserve 
a  mummy  or  two.  This  question  of  durability  will  recur  in  the 
next  section,  when  we  distinguish  between  fixed  and  circulating 
capital. 

To  return  from  this  digression.  Let  us  consider  those  objects 
which  under  no  circumstances  and  in  no  shape  could  be  used  for 
production ;  e.g.  jewelry,  lace,  pictures,  theatrical  costumes,  fancy 
ball-dresses,  expensive  carriages  and  horses,  tobacco  or  absinthe, 
photographs  and  novels ;  even  these,  if  we  take  a  subjective  or 
individual  standpoint,  may  be  regarded  as  capital,  and  are  so 
regarded  every  day  of  our  lives.  For  are  there  not  sellers  of  all 
the  products  just  enumerated  ?  Are  there  not  goldsmiths,  dress- 
makers, costumers,  furniture-dealers,  horse-dealers,  photographers, 
book-sellers,  tobacconists,  and  publicans  ?  Do  not  they  all  regard 
the  goods  which  fill  their  places  of  business  as  their  capital,  and 
are  they  not  justified  in  so  doing,  inasmuch  as  such  articles  are 
the  instruments  of  their  industry,  and  furnish  them  with  their 
income  ? 

We  are  therefore  led  to  divide  capital  into  two  species :  capital 
which  really  serves  to  produce  new  wealth,  "  productive  "  capital, 
as  we  shall  term  it ;  and  capital  which  merely  yields  an  income  to 
its  owner,  or  "  lucrative  "  capital,  as  we  shall  designate  it.  This 
epithet  has  been  accepted  by  Dr.  Bohm-Bawerk  (see,  in  the  Revue 
d'economie  politique  for  March  and  April,  1889,  an  article  on  "Une 
Thdorie  nouvelle  sur  le  capital").  Thus,  every  article  of  wealth, 
even  a  fancy-ball  costume,  or  carnival  dress,  may  act  as  lucrative 


134  PRINCIPLES    OF    POLITICAL    ECONOMY. 

capital  by  means  of  hire  or  trade ;  whereas  the  wealth,  that  from 
its  very  nature  can  be  used  as  productive  capital,  is  limited  in 
extent. 

In  the  first  edition  of  this  work  we  passed  in  review  the  various 
kinds  of  wealth,  and  discussed  their  respective  rights  to  the  name 
of  capital.  We  have  felt  obliged  to  omit  that  long  excursus,  which 
merely  turned  on  questions  of  definition,  and  to  content  ourselves 
with  the  general  idea  set  forth  in  the  present  text.  But  a  few 
kinds  of  wealth  require  a  more  special  explanation. 

In  popular  speech,  the  term  "  capital "  is  applied  (in  contradis- 
tinction from  real  property)  to  all  movable  effects  such  as  stocks, 
shares  or  debentures  in  industrial  companies,  mortgages,  notes  of 
hand,  etc.  Such  goods  are  really  not  productive  capital  in  the 
scientific  sense  ;  nor  are  they  true  wealth,  seeing  that  they  are 
merely  liens  on  other  people's  property.  No  doubt  they  yield  an 
income  to  the  holders  ;  but  the  income  gained  by  the  creditor  is 
taken  from  the  debtor's  pocket,  so  that  the  country  is  none  the 
richer  by  the  transaction,  unless,  indeed,  the  shares  are  foreign 
ones.  In  this  case,  to  avail  itself  of  such  property,  the  country 
takes  up  the  same  position  as  any  private  investor. 

Inversely,  every  day  language  never  gives  the  appellation  of 
"  capital "  to  real  property,  such  as  lands  or  houses.  Yet  there 
are  cases  in  which  they  fully  deserve  that  title.  We  ought 
never  to  call  land  capital  when  we  are  speaking  of  virgin  soil, 
the  primary  stock  granted  us  by  nature,  —  for  that  would  be  to 
confound  nature  with  capital,  —  but  from  the  time  that  this  soil  has 
been  modified  by  man's  labor,  and  appears  in  the  shape  of  land 
which  has  been  cultivated,  opened  out,  enclosed,  planted,  irrigated, 
and  so  forth,  it  falls  perfectly  well  under  the  definition  of  capital ; 
for  it  is  a  product  of  nature  and  of  labor,  and  undeniably  serves 
for  the  production  of  new  wealth.  Houses,  again,  are  only 
"  lucrative  "  capital  when  used  as  dwelling-houses,  but  they  are 
"  productive "  capital  when  in  the  shape  of  buildings  for  pro- 
duction ;  e.g.  farms,  factories,  or  shops. 

Popular  speech  is  correct  in  giving  the  name  of  capital   to 


PRODUCTION.  135 

acquired  capacities,  to  the  knowledge  needed  for  certain  profes- 
sions, and  to  education  in  general.^  Obviously  we  must  beware 
of  classing  as  capital  those  personal  qualities  and  faculties  which 
are  only  one  of  the  forms  of  human  activity ;  for  that  would  con- 
found labor  with  capital.  But  as  soon  as  man's  natural  faculties 
have  been  modified  and  worked  on  so  as  to  take  the  shape  of 
acquired  knowledge,  they  can  then  be  termed  productive  capital ; 
for  in  that  case  they  are  the  product  of  nature  and  of  labor,  and 
clearly  serve  in  the  production  of  new  wealth. 

Money,  or  coin,  in  its  capacity  of  instrument  of  exchange,  ought 
to  rank  as  "  productive  "  capital,  certainly  not  in  a  high  place, 
but  at  least  on  a  par  with  weights  and  measures,  balances,  etc., 
and  all  other  means  of  facilitating  exchange.  For  a  country  to  be 
in  a  position  to  produce,  it  requires  a  certain  amount  of  money, 
just  as  it  needs  a  certain  number  of  carts.  From  the  subjective 
or  individual  point  of  view  money  is  only  lucrative  capital,  when 
it  is  employed  for  purposes  of  profit,  and  it  is  not  capital  at  all 
when  it  is  merely  spent. 

IV.    The  Durability  of  Fixed  and  of  Circulating  Capital. 

Capital  may  last  for  more  or  less  time.  According  as  its  dura- 
bility is  longer  or  shorter,  it  will  serve  for  a  larger  or  smaller 
number  of  acts  of  production. 

The  name  "  circulating  "  is  given  to  capital  which  can  be  used 
only  once  in  consequence  of  its  disappearance  during  the  very  act 
of  production ;  for  example,  corn  which  is  sown,  manure  which  is 
buried  in  the  soil,  coal  which  is  burnt,  cotton  which  is  spun.  The 
name  "  fixed  "  is  applied  to  capital  which  can  serve  for  several  acts 
of  production  :  it  includes  the  most  fragile  implements,  such  as  a 
needle  or  a  sack ;  and  the  most  durable,  such  as  a  tunnel  or  a  canal. 

It  is  right  to  remark  that  Adam  Smith,  who  first  employed  these 
terms,  "  fixed  "  and  "  circulating  "  capital,  used  them  in  a  some- 
what different  sense.     He  understood  by  circulating  capital  that 

1  See  above,  p.  41  (Note  on  Immaterial  Wealth). — J.  B. 


136  PRINCIPLES    OF    POLITICAL    ECONOMY. 

which  gave  an  income  only  on  condition  of  its  circulating,  i.e. 
changing  hands  or  being  exchanged,  e.g.  commodities  and  money  ; 
that  capital  was  fixed  which  returned  an  income  without  being  ex- 
changed and  while  remaining  in  the  same  hands,  e.g.  a  factory.  On 
this  theory  we  should  be  compelled  to  say  that  coal  burnt  in  his 
furnaces  by  a  manufacturer  is  fixed  capital,  for  it  is  not  intended 
for  sale  ;  whereas  houses,  the  property  of  a  building  society,  which 
buys  them  to  sell  them  again,  should  be  regarded  as  circulating 
capital.  In  other  words,  to  Adam  Smith  the  essence  of  circulating 
capital  lay  in  the  change  of  ownership  ;  in  the  definition  we  have 
adopted,  it  is  to  be  found  in  the  change  of  7iature.  Adam  Smith 
took  the  subjective  or  individual  standpoint ;  we  take  the  objective 
and  social  point  of  view,  just  as  we  did  when  defining  capital  itself. 
When  the  capital  has  a  sufficiently  great  durability  and  can 
serve  for  a  good  many  acts  of  production,  it  is  not  necessary,  for 
its  employment  to  be  productive,  that  a  really  large  amount  of 
labor  should  be  economized  in  each  act  of  production.  However 
small  this  saving  may  be,  yet  as  it  is  repeated  at  every  act,  it  soon 
reproduces  the  value  of  the  expended  capital  or  the  amount  of 
labor  spent  in  producing  the  capital.  Once  that  is  done,  the 
capital  is  redeemed,  to  use  the  time-honored  expression ;  that  is 
to  say,  after  this  all  the  aid  it  grants  labor  is  gratuitous  ;  hence- 
forward the  labor  economized  is  a  net  gain  for  society.  It  is  thus 
that  an  aqueduct,  a  canal  like  that  at  Suez,  or  a  tunnel  such 
as  those  through  the  Alps,  can  last  as  long  as  the  shape  of  the 
continents.  However  large,  then,  be  the  labor  required  for  their 
construction,  and  however  small  be  the  amount  of  labor  annually 
saved  by  their  instrumentality,  the  time  will  necessarily  come 
when  the  labor  saved  will  equal  the  labor  expended.  Starting 
from  that  date,  and  enduring  for  all  the  centuries  still  destined  for 
humanity,  the  service  rendered  by  capital  will  be  henceforward 
gratuitous.  Capital  of  great  durability  is  therefore  usually  more 
advantageous  than  the  other  kind,  and  the  progress  of  civilization 
constantly  tends  to  replace  the  less  durable  by  the  more  durable 
capital. 


PRODUCTION.  137 

Still  we  must  not  forget :  Firstly,  that  the  formation  of  such 
capital  requires  the  more  labor  the  greater  the  durability  is  to  be ; 
and  that  consequently  there  is  a  balance  to  be  preserved.  But 
this  increase  in  the  amount  of  labor  expended  is  not  generally 
proportional  to  the  greater  durability  which  is  obtained,  and  this, 
very  circumstance  renders  profitable  the  employment  of  sucK 
capital. 

Secondly.  The  formation  of  fixed  capital  demands  a  present  and 
immediate  sacrifice  in  the  shape  of  a  large  amount  of  labor  or  of 
expenses,  while  the  remuneration  which  is  destined  to  accrue  in 
the  form  of  economy  of  labor  or  of  expenses  is  very  remote,  and 
is  the  more  distant  in  proportion  to  the  durabihty  of  the  capital. 
If  the  construction  of  a  ship  canal,  such  as  the  Panama  Canal,  for 
instance,  is  to  cost  eighty  million  pounds  sterling,  and  will  not  be 
paid  off  till  the  lapse  of  fifty  years,  we  must  weigh  against  that  an 
immediate  sacrifice ;  to  wit,  the  disbursement  of  that  large  sum, 
with  a  return  for  it  for  which  we  shall  have  to  wait  half  a  century. 
Now,  to  make  up  such  a  balance,  men  must  be  endowed  to  a  high 
degree  with  the  power  of  foresight  and  with  boldness,  and  have  a 
remarkable  trust  in  the  future,  —  conditions  which  are  only  found 
united  in  very  civiHzed  communities.  Ny 

Thus  it  is  that  very  little  fixed  capital  is  employed  by  peoples 
whose  social  state  is  not  advanced,  and  whose  poHtical  constitution 
affords  only  a  slight  degree  of  security.  All  their  wealth  takes  the 
shape  of  articles  of  consumption  or  of  circulating  capital.  A 
good  example  of  this  is  presented  by  a  comparison  of  the  princi- 
palities of  India  or  Mussulman  countries  at  large  with  our  own 
European  societies. 

Yet,  however  great  be  this  faculty  of  foresight,  even  in  the  most 
favorable  circumstances,  it  will  not  exceed  certain  limits.  For 
example,  a  private  person  or  a  company,  or  even  a  State,  would 
never  consent  to  advance  capital  which  would  not  be  paid  off 
until  the  end  of  two  centuries,  even  though  that  capital  might  last 
for  a  thousand  years,  and  thus  be  capable  of  rendering  gratuitous 
services  for  a  clear  eight  hundred  years.     Why  ?     Because  results 


138  PRINCIPLES    OF    POLITICAL    ECONOMY. 

which  are  not  to  be  produced  till  the  end  of  so  long  a  period 
do  not  fall  within  the  scope  of  human  predictions.  It  may,  there- 
fore, be  laid  down  as  a  rule,  that  the  employment  of  any  capital 
which  cannot  repay  itself  in  the  course  of  a  century  at  the  very 
outside  is  not  to  be  regarded  as  productive. 

Thirdly.  Another  disadvantage  of  fixed  capital  may  lie  in  the 
fact  that  if  its  durability  is  too  great,  it  runs  the  risk  of  becoming 
useless  in  the  long  run,  and  therefore  great  prudence  must  be 
exercised  in  the  predictions  just  alluded  to.  The  material  dura- 
bility of  capital  is  of  little  importance  ;  what  alone  is  of  interest  to 
us  is  the  lasting  nature  of  its  utihty.  Now,  in  certain  conditions, 
we  can  reckon  on  the  former ;  there  is  never  the  same  absolute 
certainty  as  to  the  latter.  We  know  that  utility  is  unstable,  and 
that  at  the  end  of  a  certain  time  what  was  thought  to  be  the  most 
firmly  established  may  be  called  upon  to  disappear.  We  have  no 
guarantee  when  we  pierce  a  tunnel  or  excavate  a  canal  that  traffic, 
a  century  or  two  hence,  may  not  take  another  route.  Now,  should 
such  a  revolution  in  affairs  take  place,  and  the  capital  sunk  in  the 
tunnel  have  not  yet  been  redeemed,  its  value  will  be  rendered  nil, 
and  a  certain  quantity  of  labor  will  have  been  uselessly  expended. 
Being  conscious,  then,  of  our  ignorance  of  the  future,  it  is  prudent 
not  to  build  for  all  eternity ;  and  from  that  point  of  view  the  use 
of  too  durable  capital  must  be  regarded  as  a  hazardous  enterprise. 

V.    How  Capital  is  formed. 

Capital  being  acquired  wealth  can,  like  any  other  wealth,  be 
formed  only  by  the  two  original  factors  of  all  production,  —  labor 
and  nature.  (Karl  Marx's  phrase  that  capital  is  "  crystallized 
labor"  would  be  accurate  did  he  not  purposely  omit  the  part 
played  by  nature  in  the  formation  of  capital,  always  adhering  to 
his  principle  that  all  value  springs  from  labor  alone.)  It  is  enough 
to  run  through  the  list  of  all  the  kinds  of  capital  we  can  think  of, 
—  tools,  machines,  works  of  art,  and  materials  of  all  classes,  —  to  be 
satisfied  that  they  can  have  no  other  origin  than  that  just  mentioned. 


PRODUCTION.  139 

We  need  not  have  stopped  at  so  clear  a  matter  as  the  formation 
of  capital  had  not  some  people  thought  fit  to  see  in  the  process 
a  new  agent  of  a  special  nature,  which  they  call  saving.  From 
this,  they  say,  all  fortunes  arise.  Now,  what  is  this  newcomer? 
Is  it  a  third  original  factor  of  production,  which  we  have  perhaps 
forgotten  ?  No.  Labor  and  the  forces  of  nature  are  the  only  con- 
ceivable factors.  Is  it,  then,  a  form  of  labor  ?  Some  people  think 
so.  But  what  is  there  in  common  between  the  two  processes? 
To  labor  is  to  act ;  to  save  is  to  abstain.  This  opinion  that 
saving  is  "  only  a  form  of  labor  "  is  held  by  M.  Courcelle-Seneuil, 
and  is  set  forth  in  the  article  on  the  subject  in  the  Journal  des 
Economistes  for  June,  1890  ;  but  as  the  author  himself  confesses  that 
the  only  object  of  the  theory  is  to  justify  the  social  function  of  capi- 
talists and  the  services  they  render,  we  need  not  stop  to  discuss  it. 

From  a  logical  point  of  view,  it  is  impossible  to  conceive  how 
a  purely  negative  act,  a  simple  abstention,  can  produce  anything. 
It  is  useless  for  Montaigne  to  say  that  he  "  knows  no  action  so 
potent  and  effective  as  this  inaction."  That  may  be  true  in 
morals,  but  it  does  not  explain  how  this  inaction  can  create  even 
a  pin.  When  wealth  is  said  to  have  been  created  by  saving,  the 
only  meaning  is,  that  if  this  wealth  had  been  consumed  as  soon  as 
born,  it  would  not  be  existing  still.  That  is  obvious.  But  accord- 
ing to  such  reasoning,  we  should  have  to  allow  that  an  object  is 
produced  each  time  we  refrain  from  using  it ;  and  non-destruction 
would  have  to  be  reckoned  as  one  of  the  causes  of  production,  a 
curiosity  of  logic,  to  be  sure.  If  a  child  asked  whence  chickens 
came,  and  was  told  that  to  produce  chickens  he  must  refrain  from 
eating  eggs,  we  should  be  justified  in  regarding  the  answer  as  an 
excellent  advice,  but  as  an  exceedingly  absurd  explanation.  We 
are  not  a  whit  better  satisfied  by  the  train  of  reasoning  which 
makes  saving  the  original  cause  of  the  formation  of  capital. 

This  idea  has  taken  its  rise  from  the  employment  of  money. 
In  our  modern  societies  "  to  save  "  means  to  put  in  reserve  a  cer- 
tain quantity  of  money.  Now  the  man  who  places  pieces  of  money 
in  a  drawer  most  certainly  creates  neither  wealth  nor  capital  (for, 


140  PRINCIPLES    OF    POLITICAL    ECONOMY, 

on  the  contrary,  he  withdraws  some  wealth  from  circulation)  ;  but 
since  each  coin  stands  for  a  sort  of  ticket  which  gives  its  pos- 
sessor the  right  of  levying  an  equal  value  on  the  mass  of  existing 
wealth,  it  is  clear  that  the  man  who  accumulates  these  pieces  of 
money  creates  wealth  for  himself  just  as  if  he  was  producing  it  by 
his  own  labor.  But  that  is  entirely  from  the  individual  point  of 
view. 

Hoarding,  in  truth,  is  applied  to  money,  but  apart  from  that  it 
is  doubtful  whether  saving  has  ever  produced  any  capital.  The 
stone  axe  cut  by  quaternary  man  was  doubtless  not  the  result  of 
saving.  Certainly  for  its  fabrication  man  must  have  succeeded 
in  obtaining  the  requisite  amount  of  leisure,  and  in  withdrawing 
himself  from  subjection  to  every-day  labor.  But  were  these  leisure 
hours  afforded  by  saving  in  the  shape  of  unconsumed  and  stored- 
up  provisions?  On  the  contrary,  it  is  probable  that  early  man 
was  as  little  inclined  to  limit  his  consumption  as  the  unskilled 
laborer  of  to-day,  who  only  earns  just  enough  to  keep  himself  from 
starving.  No  doubt  he  produced  his  first  capital  at  the  end  of  a 
successful  hunt  which  had  brought  him  in  more  than  usual,  or 
only  in  his  spare  moments.  Are  we  to  suppose  that  to  effect  their 
passage  from  the  hunting  to  the  agricultural  state,  tribes  had 
first  of  all  to  save  enough  food  to  last  them  for  a  whole  year? 
Nothing  is  less  probable.  They  only  domesticated  their  cattle, 
and  this,  their  earliest  capital  {cheptel^,  combined  with  a  freedom 
from  providing  for  the  morrow,  first  gave  them  the  leisure  neces- 
sary for  long  undertakings.  But,  as  Bagehot  well  asks  (^Economic 
Studies,  "Growth  of  Capital,"  pages  i66,  167),  how  does  a  herd 
or  flock  represent  any  saving?  Has  it  entailed  privations  on  its 
possessor?  On  the  contrary,  thanks  to  the  milk  and  the  meat,  he 
has  been  better  fed  ;  thanks  to  the  wool  and  the  hide,  he  has  been 
better  clothed.  After  all,  we  are  not  dreaming  of  impugning  the 
importance  or  the  utility  of  saving  ;  we  shall  come  to  it  again  when 
we  deal  with  the  use  that  should  be  made  of  wealth.  But  though 
saving  plays  an  important  part  in  consumption,  it  has  nothing  to 
do  with  production.     That  is  not  its  sphere  of  action. 


Part   II.  —  The   Social    Conditions    of    Production. 

THE  SOCIAL    ORGANISM. 

Up  to  the  present  we  have  studied  production  as  it  might  have 
been  seen  to  act  on  Crusoe's  island ;  i.e.  production  effected  by 
man  in  isolation. 

But  that  is  merely  the  hypothesis  of  a  novelist ;  for  man  is  a 
sociable  being,  and  production  is  always  more  or  less  collective 
work.  It  is  no  longer  individual,  but  collective  production  that 
we  must  now  examine.  This  social  production  is,  in  the  first 
place,  subject  to  all  the  conditions  of  individual  production  pre- 
viously discussed ;  viz.,  environment,  ground,  time,  raw  material, 
etc. ;  for  it  can  employ  no  other  agents  or  instruments  than  those 
already  familiar  to  us,  —  labor,  land,  and  capital;  but  besides 
these  it  is  regulated  by  other  conditions  which  are  peculiar  to  it, 
and  are  bound  up  with  the  mere  circumstance  of  Hfe  in  common. 

These  conditions  or  modes  of  organization  of  social  production 
are  four  in  number,  —  Association,  Division  of  Labor,  Exchange, 
and  Credit. 

These  are  not  actually  four  different  and  distinct  modes  of  organ- 
ization ;  for  they  overlap  at  many  points.  Credit  is  only  a  partic- 
ular form  of  exchange  ;  exchange  necessarily  presupposes  division 
of  labor,  and  that,  in  its  turn,  an  association  of  some  kind,  whether 
conscious  or  unconscious.     But  the  converse  is  not  true. 

Association  may  exist  without  division  of  labor,  when  each 
member  of  the  association  joins  in  the  common  work  in  the  same 
manner  and  by  the  same  acts,  e.g.  workmen  raising  a  weight, 
rowers  at  their  seats,  sailors  turning  the  capstan.  Division  of 
labor,  in  its  turn,  may  occur  without  exchange,  as  in  the  bosom  of 
a  family,   or  within  a  workshop.     Again,  exchange  is  perfectly 

141 


142  PRINCIPLES    OF    POLITICAL    ECONOMY. 

independent  of  credit,  which  is,  indeed,  only  organized  in  a  smaB 
number  of  societies.  Association,  division  of  labor,  exchange,  and 
credit  appear  then  as  successive  forms  in  the  organization  of  social 
production,  and  respectively  increase  in  complexity. 

We  might  be  disposed  to  beUeve  that  these  conditions  of  social 
production,  unlike  those  studied  in  the  preceding  Book,  have  no 
necessary  or  even  natural  characteristics,  and  might  be  inclined  to 
regard  them  as  the  result  of  arrangements  which  are  more  or  less 
ingenious,  but  are  still  artificial  and  accidental.  But  that  would 
not  be  a  correct  view  of  the  matter.  These  relations  of  associa- 
tion, division  of  labor,  exchange,  and  credit,  in  spite  of  the  endless 
varieties  of  form  they  may  assume,  are  by  nature  necessary,  univer- 
sal, and  permanent.  They  arise  spontaneously  at  all  times  and  in 
all  countries,  without  any  previous  concert  or  premeditated  delib- 
eration. They  are  found  in  some  shape  or  other  in  regions  which 
are  far  beyond  the  pale  of  political  economy,  and  even  in  the  laws 
that  govern  the  evolution  of  all  living  things. 

Edgard  Quinet,  in  La  Creation,  remarks  :  "  On  the  one  side  the 
school  of  the  historians,  on  the  other  the  men  of  science,  have  each 
done  their  work  separately  without  knowing  one  another  and  without 
a  mutual  understanding ;  yet  this  work  proves  to  be  one  and  the 
same.  If  I  dare  to  say  so,  this  meeting  is  the  greatest  intellectual 
event  of  our  time," 

Men  of  science,  in  fact,  teach  us  that  each  living  being  is  itself 
an  association  of  millions  or  thousands  of  millions  of  individuals, 
—  more  numerous,  therefore,  than  the  largest  human  societies,  — 
infinitely  small  individualities,  which,  as  Claude  Bernard  says, 
"  are  united  but  yet  remain  distinct,  like  men  holding  one  another 
by  the  hand." 

They  tell  us,  too,  that  each  organized  being  is  subject  to  the 
law  of  the  physiological  division  of  labor.  In  very  low  organisms 
all  the  functions  are  merged  together  in  a  shapeless  and  homo- 
geneous mass ;  but  as  the  scale  of  organization  rises,  the  various 
functions  of  nutrition,  reproduction,  locomotion,  etc.,  become 
differentiated,  and  each  comes  to  possess  a  special  organ.     In  fact, 


PRODUCTION.  143 

we  may  say,  the  more  divided  is  the  physiological  labor,  the 
higher  is  the  rank  of  the  organism.  "This  division  of  labor  first 
dwelt  on  by  political  economists  as  a  social  phenomenon,  and 
thereupon  recognized  by  biologists  as  a  phenomenon  of  living 
bodies,  which  they  called  the  '  physiological  division  of  labor,'  is 
that  which  in  the  society,  as  in  the  animal,  makes  it  a  living  whole. 
Scarcely  can  I  emphasize  enough  the  truth  that,  in  respect  of  this 
fundamental  trait,  a  social  organism  and  an  individual  organism 
are  entirely  alike."  —  Herbert  Spencer,  Principles  of  Sociology 
(3d  ed.),  Vol.  I,  page  440. 

We  learn,  too,  that  each  living  being  is  the  seat  of  a  perpetual 
movement  of  exchange  and  circulation,  an  exchange  of  services 
and  even  of  materials ;  for  it  is  impossible  for  a  function  of  the 
organism  to  become  specialized  in  one  single  organ,  as  we  have 
just  seen,  unless  the  other  parts  also  fulfil  other  functions  which 
are  essential  to  life  and  communicate  the  ensuing  benefits  to  the 
first-mentioned  organ.  "  A  respiratory  surface  to  which  the 
circulating  fluids  are  brought  to  be  aerated  can  be  formed  only 
on  condition  that  the  concomitant  loss  of  ability  to  supply  itself 
with  materials  for  repair  and  growth,  is  made  good  by  the  develop- 
ment of  a  structure  bringing  there  such  materials."  —  Herbert 
Spencer,  Principles  of  Sociology  (3d  ed.).  Vol.  I,  page  439. 
Indeed,  Herbert  Spencer  remarks  that,  "  the  entire  class  of  men 
engaged  in  buying  and  selling  commodities  of  all  kinds,  on  large 
and  small  scales,  and  in  sending  them  along  gradually  formed 
channels  to  all  districts,  towns,  and  individuals,  —  is  along  with 
these  channels  fulfilling  an  office  essentially  like  that  fulfilled  in  a 
living  body  by  the  vascular  system."  —  Principles  of  Sociology, 
Vol.  I,  page  484. 

Finally,  they  inform  us  that  credit  itself  is  indispensable  for  the 
due  working  of  living  beings  as  it  is  for  that  of  the  social  organ- 
isms. For,  as  Herbert  Spencer  says  {^Principles  of  Sociology,  Vol. 
I,  pages  533,  534),  "  If  an  organ  in  the  individual  body  or  in  the 
body  politic  [is]  suddenly  called  into  great  action  —  that  it  may 
continue  responding  to  the  increased  demand,  there  must  be  an 


144  PRINCIPLES    OF    POLITICAL    ECONOMY. 

extra  influx  of  the  materials  used  in  its  actions ;  it  must  have 
credit  in  advance  of  function  discharged.  In  the  individual 
organism  this  end  is  achieved  by  the  vaso-motor  nervous  sys- 
tem ;  .  .  .  through  the  vaso-motor  nerves  going  to  all  inactive 
parts  there  is  sent  an  influence  which  slightly  constricts  the  arte- 
ries supplying  them  thus  diminishing  the  flow  of  blood  where  it  is 
not  wanted,  that  the  flow  may  be  increased  where  it  is  wanted." 

Perhaps  these  analogies  between  social  and  biological  laws  may 
have  been  somewhat  exaggerated  [they  have  been  carried  to 
the  minutest  detail  in  Herbert  Spencer's  Principles  of  Sociology, 
Vol.  II,  and  Schafile's  work  on  the  Bau  und  Leben  des  sozialen 
Kdrpers\  ;  but  they  are  striking  enough  to  justify  us  in  regarding 
these  modes  of  social  production  as  manifestations  of  a  real 
natural  law. 


CHAPTER  I. 
ASSOCIATION. 

I.    The  Various  Forms  of  Association. 

"To-day,  Good  Friday,"  wrote  Fourier  in  1818,  "I  have  found 
the  secret  of  universal  association."  He  certainly  had  not  dis- 
covered it,  though  he  set  it  forth  with  remarkable  vigor;  for 
association  is  not  one  of  those  phenomena  that  require  discovery. 
As  we  have  already  proved,  it  is  a  natural  law,  perhaps,  indeed, 
the  most  general  of  all  those  which  obtain  in  the  universe  ;  for  it 
governs  not  only  the  relations  of  men  living  in  society,  but  also 
those  which  unite  the  worlds  in  the  solar  systems,  the  molecules 
or  the  cells  in  the  inmost  constitution  of  lifeless  or  organized 
bodies,  and  even  the  logical  relations  which  rule  our  thoughts. 
The  very  animals  are  acquainted  with  association,  and  some  of 
their  societies  have  always  had  something  to  teach  men  and  some- 
thing to  excite  their  wonder,  e.g.  the  bees,  the  ants,  and  the  beavers 
(see  M.  Espinas'  fine  work  on  the  Societes  animales). 

Association  is  indispensable  for  all  labors  which  are  too  great 
for  individual  strength,  were  it  only  the  raising  of  a  weight.  It 
was  by  this  co-operation  that  men  of  olden  times  were  able  to 
erect  the  Cyclopean  walls,  or  the  Pyramids  of  Egypt,  and  to  move 
galleys  with  three  or  four  banks  of  oars  ;  Egyptian  bas-reliefs  show 
us  hundreds  of  men  attached  to  a  single  rope,  and  moving  in 
harmony  with  the  rhythm  of  a  brass  instrument. 
h.  In  our  days,  this  massing  of  individual  strength  has  been  in 
one  way  rendered  less  necessary  by  the  use  of  machines,  for 
they  of  themselves  are  equivalent  to  the  resultant  of  hundreds 
and  thousands  of  arms ;  but,  on  the  other  hand,  by  making  possi- 
ble the  creation  of  large  works,  they  have  caused  association  to  be 

145 


146  PRINCIPLES    OF    POLITICAL    ECONOMY, 

still  more  indispensable.  Moreover,  even  at  the  present  time, 
there  are  many  labors  which  can  only  be  executed  by  a  joint  body 
of  workers,  —  from  the  fishing-smack,  which  requires  a  crew  of  at 
least  two  or  three  men,  up  to  the  canals  of  Suez  and  Panama, 
which  set  in  motion  whole  armies  of  laborers. 

Again,  in  modern  societies  association  is  imperative  in  conse- 
quence of  the  manner  in  which  the  elements  of  production  are 
distributed  amongst  men.  We  know  that  the  requirements  for 
every  productive  enterprise  are  a  certain  extent  of  ground,  some 
capital,  and,  above  all,  some  labor.  Now  these  several  elements 
are  rarely  united  in  the  same  person.  I  mean  to  say  that  it  is  not 
usual  for  one  and  the  same  man  to  be  able  to  supply  at  the  same 
time  the  personal  labor,  the  land,  and  the  capital  that  are  necessary 
for  production.  This,  indeed,  may  occur  in  small  industries  ;  for 
instance,  the  peasant  may  cultivate  his  own  field  solely  by  the  use 
of  his  arms  and  little  savings,  and  the  same  applies  to  the  artisan 
and  small  shopkeeper  who  earn  their  living  entirely  from  their 
own  resources,  but  the  usual  run  of  matters  is  far  different. 

Our  modem  societies  are  divided  into  two  classes :  into  those 
who  possess  the  instruments  of  production  in  the  shape  of  land  or 
capital,  and  those  who  have  nothing  but  their  arms ;  that  is  to 
say,  their  labor.  As  neither  one  class  nor  the  other  is  capable 
of  producing  aught  separately,  —  for  labor  without  instruments  and 
instruments  without  labor  are  equally  useless,  —  there  necessarily 
arises  an  association  bctweoi  landoivncrs  and  capitalists  on  the 
one  side,  and  laborers  on  the  other  side.  But  at  one  time  and 
another  this  association  between  landowners  or  proprietors  in  gen- 
eral and  men  of  the  people  has  taken  very  different  forms,  and 
the  development  of  these  successive  forms  is  one  of  the  fields 
best  suited  to  the  exercise  of  the  historical  method. 

In  its  beginnings,  this  association  was  compulsory  and  forced, 
and  was  called  slavery.  All  productive  labors  were  carried  out  by 
men  of  alien  race  and  vanquished  peoples,  who  were  grouped 
under  the  absolute  sway  of  a  master,  and  were  kept  by  him  on 
lis  estates  or  in  his  house. 


PRODUCTION.  147 

The  coercive  nature  of  this  first  method  of  productive  co-opera- 
tion was  gradually  softened  down  by  the  transformation  of  slavery 
into  the  Roman  colonics,  or  into  serfdom,  and  has  almost  disap- 
peared under  the  present  wages-system,  which  groups  together  in 
huge  factories  hundreds  and  thousands  of  men  who  are  under  the 
authority  of  a  master.  But  they  are  free  men,  free  to  come  and 
free  to  go.  Yet  in  spite  of  this  freedom,  which,  by  the  way, 
exists  in  theory  rather  than  in  practice,  this  mode  of  association  is 
far  from  being  a  perfect  association  or  partnership.  Neither  in 
legal  phraseology  nor  in  popular  speech  is  the  term  "partnership" 
applied  to  this  form  of  association,  and  our  use  of  the  word  may 
astonish  the  reader.  Here,  indeed,  we  have  a  partnership  in  fact, 
but  not  in  law,  which  is  for  pj-oductioti  afid  not  for  distrihiitio7t. 
The  workmen  do  not  in  the  least  feel  that  they  are  their  master's 
partners  ;  and,  as  we  shall  see  later  on,  that  is  one  of  the  vices  of 
the  wages-system. 

In  politics  evolution  appears  to  have  passed  through  the  suc- 
cessive phases  of  absolute  monarchy,  constitutional  monarchy,  and 
republic.  The  evolution  of  economics  would  seem  to  correspond, 
stage  by  stage,  with  the  political  evolution  ;  for  its  forms  have  been, 
first  of  all,  a  rule  of  coercion,  then  a  system  of  masterdom ;  then 
the  same  employer-r<ff/»z^,  tempered,  however,  by  profit-sharing 
and  a  certain  scope  allowed  the  workmen  in  the  carrying  on  of  the 
business,  or  at  any  rate,  in  the  management  of  superannuation 
funds,  etc.,  and  finally  the  co-operative  form. 

Now  the  coercive  form  of  industrial  enterprise  in  the  past  and 
the  monarchical  form  which  it  still  retains  at  the  present  day, 
may  have  been  necessary  for  the  proper  discipline  of  labor  and  to 
compel  men  to  co-operate  in  the  work  of  production.  But  they, 
probably,  will  not  be  final,  and  just  as  the  first  gave  way  to  the 
second,  so  will  the  latter  in  its  turn  be  succeeded  by  a  perfect  form 
of  association,  which  will  be  free  and  complete,  extending  to  dis- 
tribution as  well  as  to  production,  and  in  which  every  man  will 
have  the  clear  knowledge  that  he  is  sharer  in  a  collective  work, 
and  the  firm  will  to  co-operate  therein.     For  this  reason  we  must 


148  PRINCIPLES    OF    POLITICAL    ECONOMY. 

hold  that  social  evolution  in  this  matter  is  tending  towards  busi« 
nesses  in  which  profit-sharing  is  practised,  and,  better  still,  to 
co-operative  associations  of  production,  though  both  these  forms 
are  still  in  a  very  minor  position.  Reference  may  be  made  to 
Hertzka,  Die  Gesetze  dcr  soziakn  E?ti7vickclung ;  Lange,  Arbeiter- 
Frage ;  Metchnikoff,  La  Civilisaiioji  et  les  grandcs  fieuves  his- 
toriques ;  Secr^tan,  Etudes  soeiaks,  and  the  author's  paper  on 
"L'Avenir  de  co-operation"  in  the  Revue  socialiste  for  June  15th, 
1888.^  But  this  view  has  been  sharply  attacked  by  most  econo- 
mists of  the  classical  school  (Mill  excepted),  and  even  by  some 
of  the  chief  of  the  historical  school ;  e.g.  by  M.  Lujo  Brentano. 

Let  us  leave  this  forecast  of  the  future  and  survey  of  the  past, 
and  look  to  the  present.  In  modern  society  production  is  organ- 
ized in  the  form  of  businesses  {cntreprises') ;  that  is  to  say,  free 
groupings  of  a  larger  or  smaller  number  of  persons,  one  of  whom, 
the  master  or  employer,  supplies  the  capital,  the  implements,  and 
the  land,  whilst  the  others,  the  wage-receivers,  contribute  their 
labor.  But  whenever  the  business  assumes  considerable  dimen- 
sions, —  and  that,  we  shall  see,  is  the  current  tendency,  —  it  fre- 
quently happens  that  one  man  alone  cannot  furnish  capital  which 
shall  be  both  enough  and  in  proportion  to  the  number  of  laborers. 
In  that  case  capitalists  have  to  combine  to  get  together  the 
necessary  amount  of  capital,  and  the  business  is  turned  into  a 
joint-stock  company,  a  plan  which  has  found  extraordinary  favor 
of  recent  years  and  which  is  in  process  of  supplanting  the  old 
form  of  business  carried  on  by  individual  employers.  The  study 
of  the  other  forms  of  companies,  liability  companies,  and  so  forth, 
are  matters  of  commercial  law. 

The  joint-stock  company  has  the  especial  advantage  of  being 
exclusively  an  association  of  capital.  Now  capital,  in  striking 
contrast  to  the  two  other  elements  of  production,  land  and  labor, 

^  See  also  Professor  Gide's  paper,  "  De  la  Co-operation,  et  les  transformations 
qu'elle  est  appelee  h  realiser  dans  I'ordre  economique  "  (address  given  to  Inter- 
national Co-operative  Congress,  Paris,  September,  18S9,  and  published  in 
Revue  Economique  of  same  date).  —  J.  B. 


PRODUCTION.  149 

is  especially  adapted  for  association,  in  consequence  of  certain 
characteristics  which  are  pecuUar  to  it ;  namely,  its  divisibility 
and  its  mobility. 

To  begin  with  :  capital  can  be  divided  into  fractions  (or  por- 
tions) to  an  indefinite  extent ;  hence  each  capitalist  is  able  to 
limit  his  share  in  the  company,  and  consequently,  his  risks,  as  far 
as  he  thinks  proper.  It  is  to  this  that  joint-stock  companies  owe 
their  success ;  for  as  each  share  is  for  £^20,  or  often  even  less, 
capitalists  may  take  as  many  as  they  wish,  according  to  their 
respective  fortunes  and  the  degree  of  confidence  they  have  in  the 
enterprise. 

This  divisibility  of  capital  also  permits  of  the  starting  of  colossal 
and  extremely  hazardous  enterprises,  which  would  be  impossible 
without  its  aid.  No  capitalist,  however  rich  he  might  be,  would 
have  dared  to  supply  the  ^80,000,000  sterHng  required  for  the 
piercing  of  the  Isthmus  of  Panama,  in  consequence  of  the  extreme 
risk ;  but  now  that  such  risks  have  been  divided  ad  infinitum 
among  the  members  of  a  company,  they  have  ceased  to  frighten 
any  one. 

Further,  capital  enjoys  a  wonderful  facility  of  transferability, 
which  is  daily  increased  by  the  development  of  credit  institutions. 
In  order  that  laborers  or  proprietors  may  be  able  to  co-operate 
in  any  productive  undertaking,  that  enterprise  must  be  formed  on 
the  very  spot  and  can  only  bring  together  people  living  in  the 
same  neighborhood.  Labor  is  not  easily  moved  ;  land  cannot  be 
moved  at  all ;  but  capital  has  eagle's  wings,  and  flies  from  the 
very  ends  of  the  earth  to  any  place  where  there  is  a  prospect  of 
profit. 

But  there  are  grave  disadvantages  in  this  form  of  association 
which  prevent  us  from  believing  that  it  will  preponderate  in  the 
future,  as  some  economists  predict,  notably  de  Molinari  in  his 
V Evolution  economique  au  XIX"  Steele.  The  very  fact  that  it 
associates  only  capital,  and  does  not  combine  persons,  is  a  mark 
of  its  inferiority.  The  shareholders  are  not  acquainted  with  one 
another,  and  frequently  know  nothing  of  the  concern  of  which 


150  PRINCIPLES    OF    POLITICAL    ECONOMY. 

they  are  supposed  to  be  members,  save  its  name,  which  they  read 
on  the  stock  which  they  keep  docketed  at  their  bank  or  locked 
up  in  their  safe.  There  are  two  sets  of  persons  in  the  joint-stock 
company :  firstly,  the  shareholders,  who  are  partners  in  the  distri- 
bution, but  not'  in  production ;  and  secondly,  the  wage-receivers, 
who  are  united  by  the  fact  that  they  produce  and  labor  in  common, 
but  who  are  not  partners  as  regards  distribution.  The  former 
share  the  produce  of  a  business  in  which  they  do  not  work ;  the 
latter  work  in  a  business  the  fruits  of  which  they  do  not  receive. 
Such  a  position  is  not  at  all  conformable  to  true  morality,  and  its 
equilibrium  is  distinctly  unstable. 

II.    The  Advantages  and  Disadvantages  of  Large 
Production. 

In  the  mechanism  of  production,  as  we  have  just  shown,  there 
is  a  daily  tendency  for  the  collective  to  more  and  more  supplant 
the  individual  form.  In  old  days,  the  greater  part  of  wealth  was 
produced  by  individuals  working  apart, — artisans,  as  they  were 
called.  They  were  united,  it  is  true,  far  more  than  they  are  now- 
adays by  the  bonds  of  professional  corporations.  But  these 
corporations  possessed  the  characteristics  of  productive  enter- 
prises not  a  whit  more  than  do  our  present  professional  syndicates  ; 
and  each  artisan  worked  at  home,  either  alone  or  with  a  few 
apprentices.  Now,  however,  the  greater  part  of  wealth  is  pro- 
duced by  groups  of  men  of  various  numbers,  and  often  by  actual 
industrial  armies  engaged  in  laboring  collectively.  (Ten  to  fifteen 
thousand  workmen  apiece  are  employed  by  the  Anzin  Mines 
Company,  the  Krupp  Gun  Foundry,  and  by  the  Creusot  Iron 
Works.  One  great  railway  company,  such  as  the  Paris-Lyon- 
Mediteranee,  has  as  many  as  sixty  thousand  men.)  This  evolu- 
tion of  small  production  towards  large  production  is  one  of  the 
characteristic  features  of  the  day,  and  is  the  jirincipal  argiament 
relied  on  by  the  coUectivist  school  in  the  statement  of  its  posi- 
tion.    According  to  this  school,  this  evolution,  which  is  constantly 


PRODUCTION.  151 

tending  to  swallow  up  individual  in  collective  production,  is  des- 
tined to  end  in  absorbing  all  individual  enterprise  in  the  most  vast 
of  all  collective  enterprises ;  i.e.  in  that  which  is  carried  on  by  the 
State  or  Society. 

The  accomplishment  of  this  evolution  must  result  not  merely 
from  some  sort  of  fatality,  but  from  some  incontestable  advantages 
from  the  point  of  view  of  production.  What  are  these  advan- 
tages ?  First  of  all,  collective  production  alone  permits  of  certain 
undertakings,  which,  whether  from  their  extent  or  by  reason  of  the 
time  they  take,  far  exceed  the  limits  of  individual  strength  and 
individual  existence.  But  even  in  those  enterprises  which  would 
not  actually  overtax  individual  capacities,  collective  production 
possesses  a  marked  superiority. 

When  we  group  together  all  the  factors  of  production,  —  viz. 
manual  labor,  capital,  natural  agents,  and  situation,  —  a  certain 
economy  is  effected ;  that  is  to  say,  the  same  quantity  of  wealth  is 
produced  at  a  smaller  cost,  or  what  comes  to  the  same  thing,  more 
wealth  is  produced  at  the  same  cost. 

Firstly,  economy  in  labor.  This  first  advantage  arises  in  par- 
ticular from  the  possibility  of  establishing  an  improved  division  of 
labor,  as  will  be  noted  presently.  But  it  also  results  from  the  mere 
grouping  together  of  workers.  Among  small  producers  much 
time  is  lost.  Each  man's  hours  of  work  are  often  unfilled.  Take 
a  hundred  business  houses,  each  of  which  employs  ten  men. 
Suppose  we  merge  them  into  one.  It  is  clear  that  they  will  not 
be  obliged  to  keep  all  their  employes  in  order  to  do  business  at 
a  figure  equal  to  that  of  the  hundred  separate  establishments. 
Obviously  there  will  be  no  need  for  a  hundred  cashiers  or  a  hun- 
dred book-keepers.  As  henceforward  each  employe  will  be  able 
to  work  continuously,  he  will  be  able  to  do  two  or  three  times  the 
amount  of  work,  and  consequently  will  stand  for  two  or  three  men 
working  on  the  old  system. 

Secondly,  economy  in  situation.  To  obtain  a  hundred  times 
more  room  in  a  shop  or  a  factory,  it  is  not  necessary  to  occupy  a 
superficial  area  a  hundred  times  as  large,  or  to  employ  a  hundred 


152  PRINCIPLES    OF    POLITICAL    ECONOMY. 

times  the  amount  of  material  in  building  the  premises.  The  sim- 
plest calculation  shows  that  when  the  volumes  of  two  cubes  are  as 
I  to  1000  their  surfaces  are  as  i  to  100.  Now,  it  is  only  these  sur- 
faces that  cost  money.  Putting  aside  all  mathematical  methods, 
every-day  observation  shows  that  the  cost  of  a  building  or  the 
rent  of  a  house  does  not  increase  in  proportion  to  the  amount  of 
room  occupied.  The  smallest  shop  in  Paris  which  only  does  ^\ 
worth  of  business  a  day  will  pay  a  rent  of  from  ^200  to  ;^24o. 
But  the  rent  of  the  Bon  March^,  which  sells  ;^4000  worth  of  goods 
a  day,  and  therefore  does  a  thousand  times  more  business,  is  not  a 
thousand  times  larger,  which  would  make  ^^200,000  to  ^^240,000, 
but  is  only  ;^i  6,000.  —  De  Foville,  Des  Moyens  de  transport. 

Thirdly,  economy  in  Jiatural  agents.  A  powerful  steam-engine 
consumes,  relatively  speaking,  far  less  coal  than  a  weak  one.  The 
difference  runs  from  as  much  again  to  ten  times  as  much  again. 
Electric  lighting  is  more  economical  than  lighting  by  gas  when 
used  for  large  areas,  but  it  is  ruinously  dear  on  a  small  scale. 

Fotcrthly,  economy  in  capital.  A  large  shop  which  does  a  hun- 
dred times  more  business  than  a  small  one  is  not  obliged  to  keep 
in  stock  a  hundred  times  the  quantity  of  goods.  It  is  enough  for 
it  to  have  ten  times  more,  and  to  take  in  a  fresh  stock  ten  times  a 
year.  Thus  a  sinking  of  ten  times  the  capital  brings  about  a  hun- 
dred times  the  business.  Moreover,  the  consumer  will  be  better 
suited  ;  for  in  consequence  of  this  frequent  stock-taking  the  goods 
will  be  newer  and  more  fashionable. 

Further,  wholesale  purchasers  obtain  better  bargains  than  small 
buyers.  Thus  the  large  shop  or  factory  which  takes  in  stock  in 
great  quantities  effects,  in  this  item  too,  a  considerable  saving  on 
the  capital  it  employs.  Indeed,  it  has  been  calculated  that,  in 
consequence  of  the  combination  of  all  these  causes,  the  general 
expenses  of  an  ordinary  novelty  warehouse  are  40  per  cent,  while 
those  of  a  large  establishment  like  the  Bon  March6  are  only  14 
per  cent.  In  other  words,  the  very  articles  that  can  be  sold  at 
the  Bon  Marche  for  £4,  lis.  cannot  be  sold  for  under  jQ^  12s. 
at  a  small  shop  (see  De  Foville)  . 


PRODUCTION.  153 

Now,  are  there  nothing  but  advantages  in  this  evolution  towards 
large  production?  No  one  but  the  most  sanguine  of  optimists  could 
think  so.  Were  this  evolution  brought  about  solely  by  the  means 
of  perfect  association,  by  the  progressive  substitution  of  associated 
for  isolated  labor,  we  might  perhaps  be  able  to  see  in  it  nothing 
but  advantages.  Even  then,  however,  if  the  result  of  the  develop- 
ment of  collective  organization  was  to  weaken  and  relax  the  stim- 
ulus of  individual  initiative  and  responsibility,  like  springs  which 
rust  for  want  of  use,  we  might  justly  express  some  fear,  or  at  any 
rate  some  regret. 

We  have  stronger  reason  for  concern  when  we  see  this  evolution 
taking  the  shape  of  large  businesses  under  private  employers  or 
under  joint-stock  companies  ;  that  is  to  say,  the  progressive  sub- 
stitution of  hired  employment  for  independent  labor.  Were  this 
movement  to  continue  to  advance  at  the  rate  it  now  does,  we 
should  have  to  look  forward  to  the  disappearance  from  the  sphere 
of  economy  of  all  workers  on  their  own  account,  —  small  artisans, 
small  shopkeepers,  small  proprietors,  —  and  should  see  them  re- 
appear as  wage-receiving  laborers,  clerks,  and  officials,  working  in 
the  interests  of  other  people  or  for  shareholders.  Neither  from 
the  economical  nor  from  the  moral  point  of  view  should  we  have 
reason  to  congratulate  ourselves  on  such  a  change  of  position. 
That  would  be  rather  too  high  a  price  to  pay  for  economy  in  gen- 
eral expenses.  The  coUectivists  hope  that  the  State  or  district 
communities  or  parishes  will  gradually  take  the  place  of  employers 
or  shareholders,  and  that  thus  private  businesses  will  be  metamor- 
phosed into  "  public  services."  But  a  man  gains  very  little  (if  at 
all)  by  being  employed  by  the  State  or  by  his  parish  instead  of  by 
a  private  master,  and  our  objection  still  holds  good.  Let  us  rather 
hope  that  these  large  businesses  will  one  day  be  the  property  of 
the  laborers,  who  will  be  enriched  together,  and  will  thus  return  to 
the  position  they  held  when  small  industry  was  in  vogue  ;  i.e.  they 
will  be  the  owners  of  their  implements  of  labor,  and  will  produce 
on  their  own  account.  Perhaps,  too,  if  electricity  enables  motor 
force  to  be  conveyed  and  distributed  house  by  house,  small  in- 


154  PRINCIPLES    OF    POLITICAL    ECONOMY. 

dustry  may  be  enabled  to  hold  the  field  against  large  industry,  and 
may  possibly  gain  ground. 


III.     Whether   Large   Production   should   be    extended  to 
Agriculture. 

Evolution  towards  large  production  is  not  equally  manifested 
in  all  quarters.  Though  extremely  marked  in  the  carrying  industry 
and  in  commerce,  it  is  less  prominent  in  manufacture ;  in  France, 
especially,  an  important  place  is  still  held  by  small  industry.  In 
i860  Paris  was  calculated  to  contain  sixty-two  thousand  artisans 
working  at  home,  either  alone  or  with  an  apprentice.  In  1872 
the  number  had  risen  to  a  hundred  thousand  (see  the  discussion 
of  this  subject  by  the  Soci6t6  d'^conomie  PoHtique  of  Paris,  in 
the  Jour7ial  des  Economistes,  November,  1884. 

In  agriculture,  indeed,  the  tendency  to  large  production  has 
scarcely  become  visible.  Not  in  the  slightest  degree  in  France, 
or  even  in  Europe,  is  small  farming  disappearing  in  favor  of  large 
farming.  (According  to  the  agricultural  statistics  of  1882  there 
were  in  France  5,672,007  plots  under  cultivation,  giving  an  average 
of  about  twenty-two  acres  for  each  separate  holding.  In  reality, 
for  the  largest  number  this  average  is  far  too  high;  there  are 
more  than  two  millions  which  are  of  less  than  two  and  a  half  acres.) 
What  is  the  reason  for  this  ? 

The  coUectivists,  who  on  this  point  are  in  agreement  with  some 
of  the  leaders  of  the  classical  school,  hold  that  this  state  of  things 
is  an  anomaly,  a  mere  pause  in  evolution,  which  is  due  to  the  habit 
of  following  routine  which  is  characteristic  of  agriculture.  They 
adduce  the  example  of  the  people  of  the  United  States,  who  apply 
themselves  to  agriculture  on  the  largest  scale,  and  ask,  "  Is  it  not 
to  this  that  they  owe  that  sui)eriority  which  enables  them  to  crush 
European  agriculturists  in  our  own  markets  ? "  Some  of  those 
American  farms  have  more  than  thirty-five  thousand  acres  of  tilled 
ground,  where  everything  is  done  by  steam,  and  in  which  a  hun- 
dred ploughs  are  seen  to  start  in  the  morning,  and  not  reach,  till 
evening,  the  end  of  their  single  furrow  1 


PRODUCTION.  155 

Does  not,  then,  large  production  in  agriculture  present  the  same 
advantages  as  in  manufacture  ;  viz.,  economy  of  general  expenses  ? 
Certainly  it  does ;  though  here  the  savings  are  of  smaller  amount. 

There  is  economy  of  situation  and  of  buildings ;  for  on  a  large 
estate  less  ground  will  be  lost  in  ditches,  fences,  and  turnings  of 
the  plough,  and  less  space  wasted  in  cellars,  barns,  and  stables 
than  would  be  the  case  in  a  small  holding. 

There  is  also  economy  in  labor ;  for  though  division  of  labor  is 
far  more  difficult  to  effect  on  a  farm  than  in  a  workshop,  still  it  can 
be  applied  in  a  certain  measure,  and  the  employment  of  animals 
and  of  machines  permits  of  a  large  reduction  of  manual  labor. 

Above  all,  there  is  economy  in  capital.  It  is  clear  that  a  holding 
of  a  thousand  acres  will  not  require  as  many  oxen,  horses,  ploughs, 
carts,  and  agricultural  implements  of  all  sorts,  as  ten  farms  of  a 
hundred  acres  apiece. 

Yet,  in  spite  of  all  these  advantages,  large  farming  possesses  a 
vice  which  in  some  degree  sets  them  off.  In  proportion  to  the 
surface  cultivated,  it  obtains  from  the  soil  a  far  smaller  quantity  of 
wealth  than  does  small  farming.  Its  net  produce  may  be  larger, 
i.e.  the  proprietor  may  gain  more  profits,  but  the  gross  produce  is 
far  inferior.  Now,  taking  into  consideration  the  increasing  density 
of  population  in  all  civilized  societies,  the  future  belongs  to  that 
mode  of  farming  which  can  extract  from  the  soil  the  largest 
quantity  of  nutritious  material. 

In  his  now  old  but  not  old-fashioned  Traite  des  systemes  de 
adture,  M.  Hippolyte  Passy  recognizes  the  superiority  of  small 
farming,  both  as  regards  the  gross  and  the  net  produce.  What 
generally  makes  people  inclined  to  believe  in  the  superiority  of 
large  farming  is  the  intellectual  superiority  which  our  large  farmers 
possess  over  small  peasants ;  we  see  that  large  holdings  are  better 
kept,  and  always  lead  the  way  in  agricultural  improvements,  and 
we  are  thus  induced  to  attribute  to  the  difference  in  the  mode  of 
cultivation  what  really  arises  from  the  difference  between  the  men 
themselves. 

On  this  point  the  example  of  the  United  States  proves  nothing ; 


156  PRINCIPLES    OF    POLITICAL    ECONOMY. 

for,  though  those  enormous  farms  in  the  New  World  have  theif 
advantage  of  producing  corn  at  very  little  cost,  on  the  other  hand, 
the  quantity  they  grow  is  very  small.  The  yield  does  not  exceed 
twelve  to  thirteen  bushels  per  acre,  which  is  inferior  to  that  of  the 
most  ordinary  land  in  France.  In  France,  indeed,  the  average  yield 
per  acre  is  seventeen  bushels  ;  in  Holland,  Belgium,  and  England  it 
varies  from  twenty-six  to  thirty-three.  This  extensive  cultivation 
may  be  permissible  in  the  United  States,  where  there  is  still  plenty 
of  land  and  the  population  is  relatively  scarce,  but  when  men 
attain  such  proportionate  numbers  there  as  they  do  here,  the 
methods  of  large  farming  will  have  to  be  abandoned,  and  labor 
and  capital  will  be  concentrated  on  smaller  and  smaller  areas  in 
order  to  increase  the  yield.  Even  now,  from  one  census  to 
another,  we  see  that  this  reduction  is  being  effected  in  the  size  of 
agricultural  holdings.  When  the  United  States  are  as  thickly 
peopled  as  China,  if  they  are  destined  ever  to  become  so,  and  two 
or  three  acres  of  land  will  have  to  do  for  the  support  of  each 
family,  agriculture,  as  is  now  the  case  in  China,  will  take  the  shape 
of  kitchen-gardening;  i.e.  all  its  power  will  be  concentrated  on 
holdings  which  will  be  no  larger  than  small  gardens. 

We  believe,  then,  that  the  agriculture  of  the  future  will  be  small, 
far  rather  than  large,  farming ;  and  here  we  find  the  verification 
and  the  explanation  of  the  law  we  mentioned  above  when  speak- 
ing of  the  "  ground."  We  refer  to  the  progressive  reduction  of  the 
cultivated  area  in  proportion  as  a  people  passes  through  the  suc- 
cessive phases  of  hunting,  pastoral,  and  agricultural  life ;  and 
during  the  agricultural  period  as  the  race  passes  from  extensive 
to  intensive  cultivation,  and  thence  to  kitchen-gardening,  such  as 
is  practised  to-day  in  places  where  population  is  thickest ;  i.e.  in 
the  precincts  of  large  towns.  Round  Paris  kitchen-gardening 
may  give  as  much  as  ;^400  worth  of  gross  produce  per  acre ; 
i.e.  as  much  as  will  support  about  twenty  people  ;  but  naturally 
the  extent  of  the  holding  is  in  inverse  proportion  to  the  im- 
portance of  the  yield :  a  man  must  start  rich  to  be  able  to  culti- 
vate one  acre  on  these  conditions. 


PRODUCTION.  157 

General  Tcheng-ki-Tong,  in  the  Revue  de  la  Refornie  sociale, 
October  15th,  18S6,  says  that  "in  China  landed  estates  are  not 
extensive ;  those  of  four  or  five  acres  are  considerable,  for  two  or 
three  acres  will  provide  for  a  family  of  twenty  people." 

Besides,  small  holdings  are  by  no  means  incompatible  with 
association  or  even  with  the  methods  of  large  farming,  if  by  that 
term  we  are  to  understand  the  concentration  of  the  largest  pos- 
sible amount  of  capital  and  of  labor  on  a  gi^^en  point.  We  must 
imagine  that  in  the  future  these  small  proprietors  will  join  together 
to  introduce  on  their  land  all  the  improvements  of  agriculture,  to 
buy  or  hire  in  common  machines  and  stud  animals,  to  have  their 
produce  carried  in  common  by  portable  railways  like  the  Decau- 
ville  Railway,  to  buy  wholesale  manures,  seeds,  and  plants,  and 
also  to  sell  their  goods  collectively.  Such,  even  now,  are  the 
methods  employed  by  "  agricultural  syndicates,"  which  are  greatly 
developing  in  France.  Yet  we  must  admit  that  association  between 
landowners  presents  almost  insurmountable  difficulties  when  it  is 
no  longer  restricted  to  the  transaction  of  a  little  business  together, 
but  is  extended  to  cultivating  their  lands  in  common.  For  such 
an  association  to  succeed,  the  estates  over  which  it  is  to  act  should 
be  contiguous ;  but  for  landowners  to  be  near  neighbors  leads  to 
the  law  courts  rather  than  to  genuine  pursuit  of  the  methods  of 
association. 

The  question  of  large  and  small  farming  is  not  necessarily 
bound  up  with  that  of  large  atid  small  property  ;  for  a  large  estate 
may  be  broken  up  into  an  indefinite  number  of  small  farms,  as  is 
the  case  in  Ireland  \  and,  inversely,  small  proprietors  might  unite 
their  land  for  the  purpose  of  working  it  in  common,  as  is  done  in 
some  parts  of  Russia.  Still,  the  two  questions  are  connected,  and 
usually  speaking,  small  farming  goes  hand  in  hand  with  small 
property.  When  we  deal  with  the  distribution  of  wealth,  we  shall 
see  that  small  property  is  tending  to  replace  large  property,  and 
it  will  not  be  difficult  to  justify  this  evolution  from  the  standpoint 
of  social  justice.  Thus  the  two  evolutions  arc  advancing  on  par- 
allel lines  and  seem  to  strengthen  one  another. 


CHAPTER  II. 
DIVISION  OF  LABOR. 

I.    The  Different  Forms  of  Division  of  Labor. 

Association,  of  itself,  means  nothing  more  than  the  joining  to- 
gether of  individual  strength,  which  is  sometimes  called  "  simple 
co-operation."  Division  of  labor  implies  a  certain  distribution  of 
labor  among  the  associated  persons  so  that  each  man  executes  but 
one  operation  ;  this  is  termed  "  complex  co-operation." 

If  the  work  to  be  done  is  perfectly  simple  (such  as  digging  up 
the  earth,  raising  a  weight,  rowing,  chopping  wood),  such  labor 
does  not  lend  itself  to  any  sort  of  division  ;  each  man  will  execute 
the  same  movements.  But  as  soon  as  the  acts  involved  in  the 
work  become  complex  and  comprise  various  movements,  it  is 
altogether  advantageous  to  break  up  that  labor  (which,  considered 
as  a  whole,  appeared  as  a  single  task)  into  as  large  a  series  of 
divided  tasks  as  is  convenient,  and  to  assign  one  task  to  each 
man. 

The  first  form  of  division  of  labor  is  the  separation  of  employ- 
ments, i.e.  trades.  When  society  is  in  the  embryo,  either  as  tribe  or 
even  as  a  patriarchal  society,  each  man  takes  any  work  just  as  he 
pleases.  But  as  soon  as  society  becomes  organized,  there  is  a  ten- 
dency for  each  man  to  devote  himself  to  a  fixed  occupation,  and  the 
division  of  trades  begins.  Some  prepare  food,  some  clothing,  others 
watch  over  the  safety  of  all.  Then  in  proportion  to  the  improvement 
in  organization,  the  specialization  of  functions  grows  out  into  num- 
berless branches.  For  instance,  the  industries  of  supplying  food 
and  clothing  have  each  of  them  given  birth  to  a  hundred  different 
trades,  and  these,  in  their  turn,  may  be  subdivided  into  distinct 
operations,  each  of  which  requires  special  workmen.  The  remark- 
'58 


PRODUCTION.  159 

able  articles  by  Professor  Schmoller  on  "  La  Division  du  travail 
^tudice  au  point  de  vue  historique,"  which  appeared  in  the  Revue 
d^ Economie  politique  for  1889  and  1890/  give  excellent  accounts 
of  the  historical  development  of  division  of  labor  in  the  family,  in 
industry,  in  agriculture,  and  in  commerce. 

The  second  form  of  division  of  labor  is  that  shown  in  the  work- 
shop. This  first  drew  Adam  Smith's  attention  to  this  wonderful 
phenomenon  and  caused  him  to  write  those  classical  pages  on  the 
matter  which  have  been  quoted  over  and  over  again.  (See  the 
Wealth  of  Nations,  Vol.  I,  Bk.  i,  Chap,  i .)  The  example  he  chose 
is  a  little  out  of  date,  for  nowadays  most  pins  are  made  by  ma- 
chinery.^ As  we  have  already  seen,  all  industrial  labor  is  a  simple 
series  of  movements,  and  this  complex  movement  is  split  up  into 
a  series  of  as  simple  movements  as  possible,  and  each  of  these  is 
confided  to  different  sets  of  workmen ;  thus  each  man  (as  far  as 
is  practicable)  will  execute  but  one  movement,  which  will  always 
be  the  same. 

A  very  vicious  error  in  calculation  would  be  made  by  thinking 
that  division  of  labor  can  be  effected  by  the  employment  of  one 
single  workman  for  each  separate  act ;  far  more  are  generally 
needed.  Say  that  the  making  of  a  needle  comprises  three  differ- 
ent acts,  —  the  making  of  the  point,  the  head,  and  the  eye.  Let  the 
point  take  ten  seconds,  the  head  twenty,  and  the  piercing  of  the 
eye  thirty.  It  is  clear  that  to  keep  pace  with  the  solitary  maker 
of  points,  we  require  two  workmen  for  the  heads,  and  three  for 
the  eyes.  Thus  six,  not  three,  workmen  are  needed,  unless, 
indeed,  the  point-maker  is  to  sit  part  of  the  day  with  his  arms 
folded.     This  hypothesis  could  be  easily  complicated. 

1  Translated  from  the  original  German  papers  which  appeared  in  Schmuller'g 
Jahrbtich  fiir  Gesetzgebung,  Vol.  XIII,  Part  III  (18S9),  and  Vol.  XIV,  Part  I 
(1890). -J.  B. 

■^  Before  the  introduction  of  the  Wright  pin-machine  in  1824,  the  labor  of 
fourteen  persons  was  needed  to  mal<e  a  pin.  Nowadays,  a  needle  requires 
immensely  more  labor  in  the  proportion  of  about  seventy  to  needles  and  three 
to  pins.     (Bevan's  Industrial  Classes,  1S76.)  — J.  B. 


l60  PRINCIPLES    OF    POLITICAL    ECONOMY. 

In  the  next  chapter  we  shall  see  that  there  is  a  third  form  of 
division  of  labor  that  we  might  term  international,  which  has  only 
been  recently  developed  under  the  improvements  of  communica- 
tions, and  the  growth  of  international  trade,  each  people  devoting 
themselves  in  particular  to  the  production  of  articles  which  appear 
to  be  the  best  fitted  to  their  soil,  their  climate,  or  the  characteristic 
qualities  of  their  race. 

The  preliminary  condition  for  the  birth  and  growth  of  division 
of  labor,  under  either  of  the  above  three  forms,  is  production  on  a 
/urge  scale. 

In  fact,  the  greater  number  of  divided  tasks  into  which  the 
labor  can  be  split,  the  more  perfect  is  the  division  of  the  labor, 
but  the  number  of  workmen  will  necessarily  have  to  bear  some 
relation  to  the  number  of  these  distinct  acts.  Now  it  is  clear  that 
the  number  of  men  a  manufacturer  can  employ  depends  on  the 
extent  of  his  production ;  but  as  we  know  that  extent  of  produc- 
tion itself  depends  on  the  extent  of  the  market,  we  may  sum  up 
thus  :  division  of  labor  is  in  direct  ratio  to  the  extent  of  the 
market. 

It  is  this  question  as  to  the  extent  of  the  market,  as  has  been 
frequently  observed,  which  causes  division  of  labor  to  exist  only 
in  large  centres,  and  renders  it  unknown  in  country  or  village  life. 
In  a  little  place  we  find  higgledy-piggledy  in  one  shop,  —  groceries, 
pork-butcher's  goods,  children's  toys,  stationery,  mercer's  goods, 
ribbons,  gloves,  etc.,  which  in  a  large  town  would  give  rise  to 
as  many  different  trades.  The  reason  is  plain.  The  villager  is 
obliged  to  turn  his  hand  to  everything  and  be  a  jack-of-all-trades 
for  the  simple  reason  that  no  one  trade  would  enable  him  to  earn 
a  living. 

A  superficial  look  might  make  us  think  that  the  huge  bazaars  of 
great  capitals,  e.g.  the  Louvre  or  the  Bon  March^,  were  in  the 
same  case ;  for  they  sell  all  kinds  of  articles.  In  reality  they  ex- 
emplify the  highest  degree  of  division  of  labor ;  for  each  sales- 
room has  a  separate  trade  with  special  assistants  and  heads,  one 
dealing  with  lace,  another  with  oriental  carpets,  etc. 


PRODUCTION.  l6l 

Most  books  on  political  economy  mention  a  second  condition 
necessary  for  division  of  labor ;  namely,  a  production  which  is 
continuous  and  not  intermittent ;  hence  the  conclusion  is  drawn 
that  division  of  labor  is  not  applicable  to  agriculture. 

No  doubt  division  of  labor  on  a  farm  cannot  be  managed  in  the 
same  manner  as  in  a  workshop.  It  is  impossible  to  put  one  man 
to  sow,  another  to  reap,  a  third  to  gather  in  the  grapes,  or  graft 
or  train  or  plant  the  vine,  because  each  of  these  operations  — 
sowing,  vintage  or  corn-harvest,  grafting,  pruning,  planting  —  can 
only  be  effected  at  a  fixed  season,  and  for  a  limited  number  of 
days.  If  we  devoted  a  man  to  each  of  these  special  kinds  of  work, 
he  would  have  to  be  idle  for  eleven  months  out  of  the  twelve. 
But  it  is  possible,  or  at  any  rate  would  be  desirable,  to  arrive  at 
division  of  labor  under  another  form,  in  which  each  man,  or  group 
of  men,  would  apply  themselves  to  the  cultivation  of  a  specific 
plant.  No  doubt  this  will  be  brought  about  in  proportion  as 
agriculture  becomes  more  intensive  and  more  akin  to  gardening. 

It  was  for  this  reason  that  Fourier  put  division  of  labor  under 
agricultural  association,  and  pushed  the  method  to  the  farthest 
extent,  organizing  as  many  groups  of  laborers  as  there  are  species 
(men  to  grow  the  cabbage,  the  turnip,  the  pear,  the  cherry,  etc.), 
and  even  sub-groups  for  the  varieties  of  each  species. 

II.    The  Advantages  and  the  Disadvantages  of  Division 

of  Labor. 

Division  of  labor  increases  the  productive  power  of  labor  in 
proportions  that  surpass  all  imagination.  The  following  are  the 
reasons  for  these  :  — 

Firstly.  As  we  have  previously  explained,  the  most  complicated 
labor  is  broken  up  into  a  series  of  very  simple  and  almost  mechan- 
ical movements,  which  are  very  easy  to  execute  and  thus  wonder- 
fully facilitate  production. 

Indeed,  such  simple  movements  may  be  reached  as  to  show  us 
that  man's  intervention  is  no  longer  necessary  to  execute  them, 


l62  PRINCIPLES    OF    POLITICAL    ECONOMY. 

and  that  a  machine  will  do  as  well.  It  is  by  this  process  of  anal- 
ysis that  we  come  to  perform  mechanically  labors  which  at  first 
sight  appeared  to  be  most  compUcated. 

Secondly.  As  the  tasks  which  are  thus  created  are  of  various 
kinds,  all  of  them  differing  in  difficulty  and  in  the  strength  and 
attention  they  require,  we  are  enabled  to  fit  each  of  them  to  the 
individual  capacities  of  the  workmen.  Thus  each  man's  natural 
aptitudes  can  be  utilized,  and  we  can  escape  that  waste  of  time, 
of  strength,  and  even  of  capital,  which  would  result  from  setting  at 
the  same  work  all  alike,  weak  or  strong,  ignorant  or  intelligent,  — 
a  squandering  of  the  energy  of  the  strongest  or  the  most  able  on 
work  which  is  too  easy  for  them,  or  a  waste  of  the  labor  of  the 
weakest  or  the  most  ignorant  on  a  task  which  is  beyond  their  powers. 

Thirdly.  The  constant  repetition  of  the  same  exercise  gives 
men  a  really  wonderful  dexterity,  just  as  in  intellectual  labors  sus- 
tained and  persevering  application  singularly  develops  the  intel- 
lectual faculties,  and  thence  productive  power.  Doctors,  lawyers, 
painters,  students,  scientists,  all  have  their  specialties  nowadays ; 
and  each  man  finds  it  to  his  advantage  to  quarter  himself  in 
one  little  corner  of  human  knowledge  and  diligently  explore  its 
resources.  In  the  case  of  mental  labor  this  tendency  is  not 
without  serious  disadvantages ;  but  in  productive  labor  (properly 
so-called)  this  improvement  in  work,  which  is  acquired  by  long 
custom,  constitutes  the  principal  advantage  of  division  of  labor. 

Three  other  less  important  reasons  are  usually  assigned  for  the 
increase  in  productive  power  afforded  by  division  of  labor. 

Fourthly.  The  economy  in  time  which  results  from  the  continu- 
ousness  of  the  labor.  A  man  who  often  changes  his  work  will,  at 
each  change,  lose  not  only  the  interval  of  time  which  must  neces- 
sarily pass  between  two  different  acts,  but,  above  all,  the  time 
required  for  setting  to  work.    . 

Fifthly.  Economy  in  tools,  which  reaches  the  maximum  when 
each  laborer  employs  but  one  implement,  and  uses  that  constantly. 

Sixthly.  The  diminution  in  the  period  of  apprenticeship,  which 
is  naturally  longer  in  proportion  to  the  complex  nature  of  the  trade. 


PRODUCTION.  163 

But  against  all  these  advantages,  some  serious  drawbacks  have 
long  been  observed  :  —  ^ 

Firstly.  The  degradation  of  the  worker,  who,  by  the  repetition 
of  one  single  movement,  which  is  as  simplified  as  possible,  is 
reduced  to  play  a  purely  mechanical  part.  On  this  topic,  we  may 
refer  to  Lemontey's  classic  pages  and  famous  saying,  "  It  is  a  sad 
confession  for  a  man  to  make  that  during  his  whole  life  he  has 
constructed  nothing  more  than  the  eighteenth  part  of  a  pin  !  " 

The  rejoinder  is,  that  the  use  of  machinery  constantly  tends  to 
correct  this  evil  effect  of  division  of  labor.  Indeed,  we  may 
rest  assured  that  as  soon  as  any  act  has  been  so  simplified  as  to 
become  mechanical,  it  will  not  be  long  before  the  workman  is 
replaced  by  a  machine ;  for  in  such  a  case,  that  is  always  found 
to  be  profitable. 

Another  indispensable  corrective  of  division  of  labor  in  modem 
industry  is  a  limitation  in  the  length  of  the  day's  work,  which 
enables  the  workman  to  occupy  his  body  and  mind  in  a  more 
normal  manner. 

Fourier,  the  socialist,  believed  that,  by  the  aid  of  what  he  calls 
short  sittings,  all  the  advantages  of  division  of  labor  might  be 
obtained,  together  with  an  avoidance  of  its  disadvantages.  Accord- 
ing to  him,  each  laborer  is  to  ply  not  one  only  but  several  trades, 
and  to  pass  in  turn  from  one  to  another.  The  advantages  of 
specialization  still  remain ;  for  a  man  need  not  work  at  one  thing 
his  whole  life  so  as  to  be  able  to  do  it  well.  He  may  become  very 
skilful  in  five  or  six  different  operations,  especially  if  they  are 
simple  ones,  thanks  to  division  of  labor.  On  the  other  hand,  the 
deadening  monotony,  caused  by  the  same  work  always,  is  thus 
avoided.  In  this  manner  satisfaction  is  given  to  what  Fourier 
very  picturesquely  calls  the  "butterfly"  passion.  This  idea  of 
Fourier's  is  by  no  means  absurd,  though  it  has  been  much  ridi- 
culed ;  still,  for  its  successful  execution,  the  workman  would  need 
to  be  able  to  change  his  labor  without  losing  too  much  time. 

1  Some  of  them  by  Adam  Smith  himself.  (See  Wealth  of  Nations,  Bk.  V| 
Chap.  I,  Article  II.  — J.  B. 


164  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Nothing  but  the  phalanstery  where  all  workers  are  assembled,  and 
all  kinds  of  work  are  done  in  the  same  place,  would  allow  of  this 
sort  of  rotation  of  labor,  in  which  the  blacksmith  could  leave  his 
anvil  to  go  and  tend  his  roses. 

Secondly.  The  extreme  dependence  of  the  workman  who  is 
incapable  of  doing  anything  except  the  fixed  and  altogether  special 
operation  he  has  become  accustomed  to,  and  who  consequently  is 
helpless  when  out  of  work  or  turned  off.  Like  the  very  parts  he 
makes,  which  are  worthless  without  the  combination  of  them  which 
turns  them  into  a  whole,  he,  too,  may  be  said  to  be  nothing  more 
than  a  wheel  in  that  great  machine  we  call  a  manufacture ;  beyond 
that,  he  is  good  for  nothing. 

There  is  certainly  some  truth  in  this  criticism.  No  doubt,  given 
the  present  organization  of  industry  with  extreme  specialization  in 
purely  mechanical  acts,  and  some  disadvantages  may  result  from 
it,  especially  when  we  consider  stoppage  of  work;  but  in  a 
general  way,  it  is  not  right  to  complain  that  each  man  is  tending 
to  become  more  and  more  dependent  upon  his  fellows.  The 
consequence  of  this  reciprocal  dependence,  of  this  closer  and 
closer  union,  which  binds  individuals  together  into  a  sort  of  sheaf, 
is  not  to  diminish,  but  far  rather  to  strengthen,  individuality.  As  is 
well  remarked  by  M.  Espinas,  in  his  Societes  animales,  "  The  apti- 
tude for  isolation  is  but  a  very  inferior  characteristic  of  individuahty. 
It  is  not  a  retrogression  but  a  progression  for  the  individual  to 
become  an  organ  relating  to  a  more  extensive  whole,  and  to  hold 
numerous  relations  with  other  foci  of  life  and  other  individualities." 

Moreover,  this  is  the  result  of  a  natural  and  absolutely  general 
law.  The  more  perfect  an  organization  is,  the  more  closely 
dependent  is  the  individual  on  the  other  individuals  with  whom 
he  is  associated.  In  weakly  constituted  societies,  in  virtue  of 
their  imperfect  organization,  each  individual  keeps  his  own  par- 
ticular worth,  and  may  be  separated  from  the  society  to  which 
he  belongs  without  great  harm,  either  to  himself  or  to  it;  just 
as  sponges,  polyps,  and  even  earthworms,  may  be  divided  into 
segments  without  much  disadvantage,  the  severed  piece  being  self- 


PRODUCTION.  165 

sufficient.  But,  in  an  organized  society  where  division  of  labor 
is  firmly  established,  man  becomes  so  dependent  upon  his  fellows 
that  if  he  is  separated  from  them,  it  is  impossible  for  him  to  live ; 
just  as  in  highly  organized  beings  a  member  detached  from  the 
body  dies  at  once,  and  in  some  cases,  draws  along  with  it  the 
death  of  the  body  to  which  it  belongs.  It  is  the  old  fable  of 
Menenius  Agrippa,  —  the  fable  of  the  belly  and  the  members,  — 
though,  indeed,  he  knew  nothing  of  sociology  or  biology.  "  Let 
a  division  be  made  between  the  coal-mining  populations  and  adja- 
cent populations  which  smelt»metals  or  make  broadcloth  by  ma- 
chinery, and  both,  forthwith  dying  socially  by  arrest  of  their  actions, 
would  begin  to  die  individually."  —  Herbert  Spencer,  Principles 
of  Sociology  (3d  ed.),  Vol.  I,  page  506. 

Every  time,  then,  that  people  complain  of  division  of  labor,  — 
that  it  kills  individuaUty  by  reducing  the  laborer  to  the  position  of 
a  mere  accessory,  and  placing  him  in  a  state  of  absolute  depend- 
ence, —  we  must  answer  that  it  is  only  a  small  evil  in  exchange  for 
a  great  good,  the  wider  and  wider  development  of  social  solidarity. 

As  Professor  Schmoller  says,  in  the  articles  referred  to  above,  in 
the  Revue  d^Econotnie  politique  for  1890  :  "Those  who  give  vent 
to  the  above  criticisms  are  mistaken,  both  historically  and  practi- 
cally, if  they  imagine  that,  before  the  inception  of  division  of 
labor,  man  was  nearer  to  the  ideal  of  human  individuality  and 
was  more  harmoniously  developed.  Without  division  of  labor  he 
would  be  merely  a  barbarian,  who  eats,  drinks,  and  lives  in  idleness. 
Through  it  alone  has  high  culture  been  rendered  possible,  in  in- 
tellectual matters,  in  morals,  in  aesthetics,  and  in  economics.  First 
of  all,  this  fell  only  to  the  lot  of  a  few,  but  it  is  gradually  extend- 
ing to  a  larger  number  of  individuals.  We  shall  not  make  man 
perfect  by  endeavoring  to  harmoniously  develop  all  his  powers ; 
that  would  be  to  ask  for  what  is  impossible.  Man's  weakness  and 
the  short  duration  of  his  life  prevent  him  achieving  anything 
more  or  anything  nobler  than  this  :  —  he  must  devote  himself  to  a 
special  vocation,  but  at  the  same  time  must  regard  with  an  open 
mind  all  that  is  best  and  greatest  in  other  spheres  of  activity." 


l66  PRINCIPLES    OF    POLITICAL    ECONOMY. 

III.    Liberty  of  Labor. 

By  what  mysterious  law  is  this  division  of  labor  established  in  a 
human  society  ?  It  is  not  enough  to  say  that  it  arises  spontane- 
ously in  consequence  of  a  fate-determined  evolution  hke  that 
which  forms  and  distributes  the  organs  of  the  human  body ;  for 
then  we  should  have  to  inquire  how  men,  who  are  free  agents,  are 
thus  distributed  between  the  various  trades,  so  that  each  occupa- 
tion has  its  due  proportion  of  hands  and  no  more. 

Division  of  labor  in  the  workshop  presents  no  difficulty,  for  it  is 
the  manager  or  the  master  himself  who  assigns  their  respective 
tasks  to  his  men ;  but  when  we  come  to  division  of  labor  in 
society,  the  separation  of  trades  and  professions,  we  ask,  What  is 
the  power  that  there  assigns  his  work  to  each  person  ? 

It  is  the  law  of  value,  or  the  law  of  supply  and  demand.  If 
men  flock  too  freely  into  any  trade  or  profession,  their  labor  or 
their  services  become  depreciated  in  consequence  of  their  super- 
abundance, and  they  are  not  long  in  retiring  from,  or,  at  any  rate, 
in  dissuading  their  children  from  entering  upon,  a  career  which  is 
no  longer  remunerative.  If,  on  the  other  hand,  any  trade  or  pro- 
fession is  not  completely  filled,  those  who  are  engaged  in  it  find 
their  labor  or  services  greatly  enhanced  in  value  in  consequence 
of  their  scarcity;  and  this  premium  on  wages  or  profits  soon 
attracts  many  competitors  into  the  calling. 

It  is  the  working  of  free  competition,  then,  or,  in  other  words, 
each  man's  liberty  to  choose  the  kind  of  labor  he  thinks  most 
advantageous,  which  maintains  in  some  sort  of  equilibrium  the 
necessary  proportions  between  the  various  professions  and  trades. 

As  is  well  known,  liberty  of  labor  ranks  among  the  conquests  of 
the  Revolution  of  1789,  and  has  since  then  gradually  spread  over 
the  whole  Continent.  Under  the  ancien  regime'  labor  was  subject 
to  a  system  of  regulation  which  was  both  highly  protective  and 
extremely  vexatious  (the  two  things  generally  go  hand  in  hand), 
and  which  was  carried  out  by  the  statutes  of  the  corporations 
themselves  as  much  as  by  the  petty  interference  of  the  govern- 


PRODUCTION.  167 

ment.  This  system,  which  was  first  suppressed  by  Turgot,  was 
definitely  abolished  by  the  celebrated  law  of  March  17,  1791. 

Yet  it  cannot  be  asserted  that  the  distribution  of  labor  in  our 
modern  societies,  such  as  it  results  from  liberty  of  labor,  is  any- 
thing to  boast  of,  and  we  are  unable  to  share  the  complacent  admi- 
ration expressed  on  this  subject  by  too  many  economists.  Indeed, 
when  we  look  at  the  matter,  free  from  all  preconceived  ideas,  we 
are  astounded  at  the  really  extraordinary  development  of  parasitic 
or  even  harmful  industries,  such  as  the  liquor-sellers,  who  are 
almost  as  numerous  as  the  effective  staff  of  the  French  army. 
The  number  of  licensed  liquor-sellers  in  France  is  422,303.  This, 
of  course,  includes  hotel  and  restaurant  proprietors  ;  but  the  public- 
houses  proper  are,  none  the  less,  terribly  numerous  in  large  towns. 
In  the  Department  of  the  Nord,  one  drink-shop  is  reckoned  for 
forty-six  people  ;  and,  as  out  of  these  forty-six  inhabitants  three- 
quarters  are  women  and  children,  that  leaves  one  public-house 
for  every  twelve  men  ! 

Even  when  we  come  to  useful  industries,  we  find  that  some 
are  much  undermanned,  —  for  example,  country  doctors,  —  whilst 
others  are  enormously  over-crowded,  such  as  the  grocers  and 
bakers  who  swarm  in  our  towns  to  their  own  ruin  and  to  that 
of  the  consumer  as  well.  Here  are  the  figures  of  some  of  these 
inequalities.  In  all  France  there  are  14,668  doctors  or  health- 
officers.  This  number  (i  to  every  2000  persons)  would  be  enough 
if  they  were  well  distributed  ;  but  they  are  almost  all  in  the  towns, 
leaving  only  3000  or  4000  for  a  rural  population  of  20,000,000 ; 
i.e.  I  for  6000  or  7000  persons,  and  very  scattered,  too.  Of 
grocers,  on  the  other  hand,  there  are  106,101,  or  i  for  90  fami- 
lies. There  are  52,957  bakers,  and  almost  as  many  butchers; 
or  I  for  180  families.  Of  course,  in  the  towns  the  proportion  is 
far  higher. 

In  fact,  the  personal  motives  which  incite  workers  to  enter  on 
such  and  such  a  calling  are  far  from  being  synonymous  with  the 
interests  of  society.  The  remuneration  allowed  by  the  law  of 
supply  and  demand  to  any  labor  or  service  is  certainly  in  propor- 


l68  PRINCIPLES    OF    POLITICAL    ECONOMY. 

tion  to  the  utility  of  that  labor  or  service ;  but  we  know  that  this 
utility  has  no  rational  or  moral  value,  and  does  nothing  more  than 
respond  to  men's  desires  or  men's  frailties. 

In  spite  of  the  shortcomings  of  liberty  of  labor  and  competition 
as  regulators  of  social  production,  we  cannot  easily  think  of  any- 
thing which  could  take  their  place,  except  compulsion,  which  would 
be  worse.  The  collectivist  and  communist  systems,  it  is  true,  im- 
agine that  they  can  be  advantageously  replaced  by  commission* 
ing  the  social  power  with  the  duty  of  apportioning  the  number  ot 
laborers  required  for  each  office,  a  task  which  would  be  facilitated 
by  the  use  of  greatly  improved  statistics.  Thus  division  of  labor  in 
society  would  be  established  in  the  same  way  as  it  is  in  the  work- 
shop, i.e.  by  regulation.  It  is  not  altogether  obvious  in  what  man- 
ner the  mechanism  of  production  could  gain  by  this,  whilst  it  is 
perfectly  clear  how  much  each  one  of  us  would  lose  in  respect  of 
liberty.  Still,  in  the  Revue  socialiste  of  April,  1888,  an  attempt 
was  made  by  M.  Tufferd,  in  an  article  on  "  La  Repartition  du 
travail  dans  la  soci^te  future,"  to  effect  this  distribution  of  labor 
without  wounding  individual  liberty.  But  the  author  has  to 
have  recourse  to  the  law  of  supply  and  demand,  which,  indeed, 
is  unavoidable.^ 

1  A  thorough  discussion  of  the  subject  will  be  found  in  Professor  Marshall's 
Principles  »f  Economics  (1890),  Bk.  VII,  Chaps.  IV  and  V. — J.  B. 


CHAPTER  III. 
EXCHANGE. 

I.    On  the  Part  played  in  Production  by  Exchange. 

Exchange  fills  a  huge  place  in  social  life. 

Sufificient  proof  of  that  rests  in  the  fact  that  nearly  the  whole  of 
the  wealth  which  is  produced  is  only  produced  for  the  purpose  of 
being  exchanged.  Take  the  corn  in  the  granaries,  the  wine  in  the 
cellars  of  land  proprietors,  the  clothing  in  the  tailoring-rooms,  the 
shoes  at  the  bootmaker's,  the  jewels  at  the  goldsmith's,  the  bread 
at  the  baker's  —  and  ask.  What  part  of  all  this  wealth  is  destined 
by  the  producer  for  his  own  consumption  ?  Very  little  or  none  at 
all.  It  is  only  merchandise,  or,  as  the  name  tells,  objects  intended 
for  sale.  Our  industry,  our  skill,  our  talents,  are  also  more  often 
than  not  applied  to  satisfy  the  wants  of  others,  and  not  our  own 
needs.  How  often  does  it  happen  that  the  barrister,  the  doctor, 
and  the  solicitor  have  to  work  on  their  own  account,  plead  their 
own  cases,  attend  to  their  own  ailments,  draw  up  their  own  deeds  ? 
They,  too,  regard  these  services  only  from  the  point  of  view  of 
exchange.  This  is  so  true  that  when  we  come  to  estimate  our 
wealth,  we  weigh  it  not  according  to  the  greater  or  less  amount 
of  satisfaction, it  has  afforded  us,  but  purely  according  to  its  value  ; 
in  other  words,  according  to  its  power  of  exchange. 

A  family  of  peasants  living  on  their  own  land  and  burdened 
with  fev/  wants  might  at  a  pinch  be  able  to  consume  nothing  but 
what  they  produce,  and  only  produce  what  they  will  be  obliged  to 
consume  ;  but  for  this  to  be  effectual  the  family  would  have  to  live 
almost  in  the  savage  state,  and  I  do  not  believe  that  any  civilized 
society  could  offer  a  solitary  instance  of  such  an  occurrence. 

This  state  of  affairs,  in  which  exchange  reigns  supreme,  is  due 

169 


I/O  PRINCIPLES    OF    POLITICAL    ECONOMY. 

to  division  of  labor  as  described  in  the  last  chapter.  For  how 
could  a  man  settle  down  in  one  occupation,  e.g.  devote  his  life  to 
the  manufacture  of  nails  or  the  making  of  cheese,  unless  he  could 
reckon  on  others  making  bread  for  themselves  and  for  him,  and 
on  his  thus  being  able  to  obtain  by  exchange  everything  he  does 
not  produce  himself? 

We  must  admit,  however,  that  some  socialist  schools  propose  a 
reconstruction  of  society  in  which  exchange  will  be  suppressed 
without  any  modification  in  division  of  labor.  They  propose  to 
solve  the  problem  by  a  resort  to  communism.  In  the  bosom  of  a 
family,  or  even  in  the  heart  of  a  tribe,  there  is  some  division  of 
labor,  although  of  a  rudimentary  kind ;  but  there  is  no  exchange 
between  the  members  of  that  family.  Each  member  pours  into 
the  common  fund  the  product  of  his  own  labor,  and  takes  from 
that  fund  products  which  he  makes  use  of  for  his  own  personal 
consumption.  Is  it  not  possible  to  conceive  the  extension  of  this 
system  to  an  entire  country  ?  No ;  for  real  community  can  only 
exist  between  people  living  together,  say  in  the  same  commune 
or  parish ;  now,  as  it  would  be  absurd  to  think  that  each  parish  in 
a  civilized  country  can  produce  all  it  consumes,  and  only  con- 
sumes what  it  produces,  exchange  relations  would  be  necessitated 
between  the  different  parishes.  And  if,  as  an  absurd  hypothesis, 
real  communism  were  extended  over  the  length  and  breadth  of  a 
country,  exchange  between  different  countries  would  come  into 
play.  All,  then,  that  communism  can  do  is  to  replace  exchange 
between  individuals  by  exchange  between  collective  bodies. 

Whether  exchange  should  be  considered  to  be  productive  of 
wealth  is  an  old  question  of  debate  among  economists.  The 
Physiocrats  used  to  answer  it  in  the  negative.  When  we  look  at 
the  fact  of  exchange  separately,  and  reduced  to  its  legal  basis,  as  a 
simple  transfer  of  property,  as  a  quid  pro  quo :  we  certainly  cannot 
term  it  an  act  of  production ;  for  it  follows  from  its  very  definition 
that  its  function  is  not  to  produce  new  wealth,  but  to  transfer 
already  existing  wealth.  Clearly,  the  sale  of  a  piece  of  land  car>- 
not  be  called  an  act  of  production.     Moreover,  as  sale  and  pu  ^ 


PRODUCTION.  171 

chase  are  the  two  faces  of  exchange,  if  to  sell  is  to  produce,  so 
likewise  is  to  buy ;  and  we  should  all  of  us  be  producing  every 
time  we  make  a  purchase.    That  would  be  a  confusion  of  language. 

But  we  must  not  look  at  exchange  in  this  light.  We  must 
regard  it  as  the  last  in  that  series  of  acts  of  production  which 
begins  with  invention,  also  a  non-material  act,  and  continues 
through  the  whole  series  of  agricultural,  manufacturing,  and  trans- 
porting industries,  forwarding  products,  stage  by  stage,  towards 
their  final  destination,  the  hands  of  the  person  who  is  to  use  them.* 
Change  of  form,  of  place,  and  of  ownership  are  all  three  equally 
indispensable  for  the  final  result ;  and  surely  the  last  named  is  not 
the  least  important. 

Yet  the  Physiocrats  attempted  to  show  that  exchange  was  profit- 
able to  no  one.  For,  said  they,  all  exchange,  if  it  is  equitable, 
presupposes  the  equivalence  of  the  two  values  exchanged,  and  con- 
sequently implies  that  there  is  neither  gain  nor  loss  on  either  side. 
It  is  true  that  one  party  may  be  cheated ;  but  in  that  ca^e,  one 
man's  profit  is  easily  balanced  by  the  other's  loss,  so  that  altogether 
the  final  result  is  nought  (see  Quesnay,  Dialogues  sur  le  Cojn- 
merce,  and  Le  Trosne,  De  VInteret  social) .  This  is  nothing  but 
sophistry,  and  was  refuted  by  Condillac  long  ago.  We  need  only 
remark  that,  if  no  exchange  ever  led  to  profit,  or  if  every  exchange 
necessarily  implies  fraud,  it  would  be  difficult  to  understand  why 
men  have  persisted  in  practising  exchange  for  so  many  centuries. 
As  a  matter  of  fact,  the  values  exchanged  are  not  equivalent. 
What  I  yield  in  the  process  of  exchange  is  always  worth  less  to  me 
than  what  I  acquire ;  for  clearly  without  that  motive  I  should  not 
surrender  it  at  all,  and  my  fellow-exchanger  goes  through  the  same 
train  of  reasoning  for  his  part.  Each  of  us  considers  that  he 
receives  from  the  exchange  more  than  he  gives,  and  we  are  both 
of  us  correct.  There  is  no  contradiction  between  these  opposite 
Judgments  and  conflicting  preferences,  for  we  know  that  the  utility 

^  Consumption  is  the  raison  d'etre  of  all  goods,  and  not  merely  of  the  food, 
of  which  Hegel  said  once  at  a  dinner :  "  Bring  it,  that  zve  may  fulfil  its  destiny  " 
(Z;/.,p.2i7).-J.B. 


1/2  PRINCIPLES    OF    POLITICAL    ECONOMY. 

of  each  thing  is  purely  subjective,  and  varies  according  to  the 
wants  and  desires  of  each  individual. 


II.    The  Advantages  of  Exchange. 

The  advantages  of  exchange  may  be  grouped  under  the  two 
following  heads  :  — 

Firstly.  Exchange  enables  us  to  utihze  for  the  best  a  large 
quantity  of  wealth  which  without  it  would  have  remained  unused. 
Without  exchange  what  would  England  do  with  her  coal,  California 
with  her  gold,  Peru  with  her  guano,  Brazil  with  her  "bark"? 
When  analyzing  the  nature  of  wealth,  we  found  that  an  indis- 
pensable condition  for  any  object  ranking  as  wealth  was  its  capa- 
bility of  being  utilized.  For  this  to  be  effected,  exchange  must 
convey  the  article  to  the  person  who  is  to  use  it,  —  the  quinine  to 
the  fever  patient,  guano  to  the  farmer,  coal  to  the  manufacturer, 
etc.  Suppose  that  to-morrow  a  decree  be  issued,  suppressing 
exchange  everywhere,  in  consequence  of  which  every  man  and 
every  nation  will  be  obliged  to  keep  on  their  own  land  or  terri- 
tory and  for  their  own  use  all  the  wealth  they  possess.  Just 
imagine  what  an  enormous  mass  of  wealth  would  at  that  single 
stroke  be  condemned  to  uselessness,  and  be  good  only  for  rotting 
where  it  stood  !  Not  only  must  we  say  that  without  exchange  the 
greater  part  of  wealth  would  be  unused,  but,  we  must  add,  it 
would  never  have  been  produced  at  all. 

Secondly.  Exchange  in  particular  enables  us  to  utilize  for  the 
best  a  host  of  productive  capacities  which  without  it  would  have 
lain  idle.  Observe,  in  fact,  that  were  there  no  exchange,  each 
man  would  have  to  apply  himself  to  the  production  of  all  that  is 
necessary  to  supply  his  wants ;  and  supposing  they  were  ten  in 
number,  he  would  have  to  ply  ten  different  trades  :  whether  he  did 
them  well  or  ill  would  be  of  no  consequence.  He  would  be 
obliged  to  regulate  his  production  7iot  according  to  his  aptitudes, 
but  according  to  his  wants.  The  introc^uction  of  exchange  com- 
pletely changed  all  this.     Henceforward,  as'each  man  was  sure  of 


PRODUCTION.  173 

obtaining  by  exchange  all  that  he  required,  he  could  devote  him- 
self to  the  occupation  he  could  do  the  best,  and  could  regulate  his 
production  not  according  to  his  wants,  but  according  to  his  apti- 
tudes or  his  means.  Before  the  establishment  of  exchange,  each 
dweller  in  the  world  had  to  produce  what  he  most  needed.  Since 
the  institution  of  exchange,  he  has  only  had  to  produce  what  he 
can  do  the  most  easily.  Of  a  truth,  a  great  and  wonderful  sim- 
plification ! 

It  may  be  said  that  this  advantage  greatly  resembles  those 
afforded  by  division  of  labor ;  in  fact,  it  is  the  same  advantage, 
but  hugely  increased  and  multiplied.  It  would  be  more  correct 
to  say  that  it  is  to  exchange  we  owe  division  of  labor  with  all 
its  tributary  advantages ;  through  exchange  division  of  labor  is 
enabled  to  overstep  the  narrow  circle  of  the  workshop,  or  the 
family  community,  and  to  spread  out  over  the  whole  surface  of  a 
large  country,  and  even  to  the  ends  of  the  earth.  Were  there  no 
exchange,  association  and  division  of  labor  would  demand  a  pre- 
arranged concert  between  the  fellow-workers ;  a  mutual  under- 
standing would  be  necessary  for  their  union  in  a  common  work. 
But  exchange  dispenses  with  the  necessity  for  this  prior  agree- 
ment ;  each  man,  henceforth,  from  far  or  near,  can  produce 
according  to  his  natural  or  acquired  aptitudes,  and  according  to 
the  natural  products  of  the  land  he  lives  in ;  he  can  devote  him- 
self entirely  to  one  kind  of  labor,  and  can  always  keep  throwing 
the  same  product  upon  the  market,  resting  sure  that  by  the  aid  of 
the  ingenious  mechanism  presently  to  be  investigated,  he  will  be 
able  to  receive  in  the  exchange  the  objects  he  may  desire.  It 
has  often  been  remarked  that  the  daily  consumption  of  each  one  of 
us  is  the  combined  result  of  the  toil  of  hundreds,  or  perhaps  thou- 
sands, of  laborers,  who  are  united  by  the  bonds  of  an  association 
which,  though  perhaps  unperceived,  none  the  less  exists.  Adam 
Smith  gave  excellent  instances  of  this  (^Wealth  of  Nations^, vAi\c!ci 
have  been  reproduced  in  various  forms.  For  example,  M.  de 
Laveleye,  in  his  Elements  d'economie  politique,  ^ays  :  "  The  poorest 
workman  consumes  the  products  of  the  two  worlds.    The  wool  for 


174  PRINCIPLES    OF    POLITICAL    ECONOMY. 

his  clothes  comes  from  Austraha,  the  rice  in  his  soup  from  India, 
the  corn  in  his  bread  from  lUinois,  the  petroleum  for  his  lamp 
from  Pennsylvania,  his  coffee  from  Java." 

Thus  it  is  that  in  any  country,  and  even  in  the  whole  world,  the 
best  possible  use  is  made  of  all  the  labor,  all  the  capital,  all  the 
natural  agents  that  are  available,  that  the  right  man  is  put  in 
the  right  place,  and  that  each  man  and  each  people  exercise  to 
the  full  both  their  skill  and  their  productive  power. 

III.     On  the  Means  of  facilitating  Exchange. 

Exchange  would  be  very  difficult,  nay,  almost  impossible,  had 
not  ingenious  means  been  contrived  for  simplifying  and  facilitat- 
ing it.     They  may  be  classified  as  follows  :  — 

Firstly,  the  institution  of  a  class  of  tniddletnen,  called  traders  or 
business  me7i,  and  various  other  methods  for  putting  into  commu- 
nication producers  and  consumers. 

Secondly,  the  creation  and  improvement  of  means  of  transport 
for  the  easier  removal  of  commodities  from  place  to  place. 

Thirdly,  the  invention  of  a  commodity  meant  to  act  as  a  common 
third  under  the  name  of  money,  to  break  up  barter  into  sale  and 
purchase.     We  will  investigate  these  in  turn. 

IV.     On  the  Part  played  in  Production  by  Traders. 

It  would  be  a  mistake  to  think  that  trade  began  between  neigh- 
bors, and  thence  gradually  spread  farther  afield.  The  members 
of  one  and  the  same  tribe  are  too  much  akin  in  their  habits  and 
their  wants,  and  division  of  labor  is  too  fully  developed,  for  any 
regular  movement  of  trade  to  arise.  Thus  trade  was  first  set 
on  foot  between  distant  peoples  inhabiting  countries  of  diverse 
natures  ;  in  a  word,  there  was  international  trade  before  there  was 
home  trade.  Hence  the  earliest  traders  were  travellers  or  adven- 
turers, such  as  we  read  of  in  Marco  Polo's  travels,  and  in  the 
equally  characteristic  though  imaginary  journeys  of  Sinbad  the 
Sailor,  in  the  Thousand  and  One  Nights. 


PRODUCTION.  175 

Now  as  trade  was  only  carried  on  bebveen  strangers,  or,  as  for 
the  ancients  the  terras  were  synonymous,  between  enemies,  its  first 
beginnings  were  attended  by  fraud,  stratagem,  and  frequendy  by 
violence ;  and  the  public  conscience  was  not  disquieted  by  the 
circumstance  that  Mercury  was,  at  one  and  the  same  time,  the 
god  of  traders  and  of  thieves. 

It  therefore  follows  that  from  the  first,  traders  were  persons  of 
note,  who  were  envied  and  feared  —  and,  ranking  far  above  the 
artisan  and  agricultural  classes,  were,  in  fact,  a  true  aristocracy. 
It  was  only  at  a  comparatively  recent  date  that  small  retail  trade 
began  to  make  its  appearance.  This  evolution  of  the  trader  class 
may  be  studied  in  Professor  SchraoUer's  article,  which  we  have 
quoted  above. 

Two  phases  may  be  noted  in  the  history  of  traders. 

Firstly.  First  of  all  there  is  the  travelling  trader.  He  still  exists 
in  all  countries  where  trade  is  not  yet  highly  developed ;  trade  is 
there  carried  on  by  means  of  caravans.  Survivals  of  this  are  the 
pedlar  to  be  seen  in  our  villages,  and  the  hawkers  with  their  cries, 
who  make  the  streets  of  Paris  resound  with  their  varied  melodies. 

But  this  system  of  the  trader  travelling  with  his  goods  is  very 
imperfect,  for  it  can  scarcely  be  applied  except  to  articles  of 
luxury  or  of  easy  transport,  and  is  exceedingly  burdensome,  for 
each  commodity  is  charged  with  enormous  general  expenses. 
The  profits  of  the  traders  who  take  caravans  through  Central 
Africa  must  be  at  least  400  per  cent  to  yield  any  remuneration 
at  all. 

Secondly.  Thus  whenever  commerce  has  attained  any  robustness 
of  development,  the  travelling  trader  soon  gives  place  to  the  sed- 
entary trader,  that  is  to  say,  the  shopkeeper.  Before,  it  was  the 
trader  who  went  forth  to  seek  for  his  customer ;  henceforward, 
the  customer  has  to  come  and  find  the  trader.  It  is  necessary 
then  for  the  trader  to  attract  the  attention  of  the  passer-by  either 
by  sign-boards,  which  still  survive  in  the  barber's  pole,  which  is 
suspended  from  hair-dressers'  doors,  or  the  Highlander  or  the 
Turk's  head  before  tobacconists',  or  by  the  display  of  the  goods 


1/6  PRINCIPLES    OF   POLITICAL   ECONOMY. 

themselves  in  dazzling  shop-fronts ;  again  he  may  have  to  attract 
his  customer  from  afar,  either  by  advertisements,  puffs,  and  cata- 
logues, or  by  commercial  travellers,  more  elegantly  called  nowa- 
days "  representatives  of  commerce,"  who  resemble  the  travelling 
traders  of  the  past,  but  differ  from  them  in  only  carrying  samples 
of  their  goods. 

The  following  are  the  advantages  that  society  derives  from  the 
existence  of  traders  :  — 

Firstly.  They  serve  as  middlemen  between  the  producer  and 
the  consumer,  and  save  each  of  them  the  time  he  would  have  to 
waste  in  seeking  for  the  other. 

Secondly.  They  take  goods  wholesale  from  the  producer,  and  by 
selling  them  retail  obviate  the  embarrassments  which  would  inevi- 
tably arise  from  an  absence  of  coincidence  between  the  quantity 
offered  by  the  producer  and  that  demanded  by  the  consumer. 

Thirdly.  They  keep  the  articles  in  stock,  and  thus  prevent  the 
difficulties  which  might  result  from  the  absence  of  another  coinci- 
dence,—  namely,  between  the  time  at  which  the  producer  wishes  to 
dispose  of  his  product  and  the  time  when  the  consumer  is  desirous 
of  acquiring  it.  These,  no  doubt,  are  weighty  services,  but,  as  we 
shall  see,  rather  too  high  a  price  is  paid  for  them. 

V.    The  Disadvantages  of  the  Multiplication  of  Traders. 

In  consequence  of  various  causes,  among  the  chief  of  which 
must  be  placed  the  easy  labor  involved  in  the  profession  of  trader, 
and  the  attraction  it  has  for  many  people,  especially  in  France, 
the  numjper  of  these  middlemen,  and  of  retail  tradesmen  in  par- 
ticular, has  become  altogether  disproportionate  to  men's  wants. 
This  is  seen  in  the  figures  given  a  few  pages  back  (page  167). 
About  one-tenth  of  the  population  of  France  is  employed  in  trade 
in  various  ways  :  such  a  proportion  is  altogether  excessive.  It  is 
a  terrible  waste  to  maintain  one  middleman  for  every  ten  persons. 
This  multiplication  of  middlemen,  by  reducing  each  man's  sale, 
has  burdened  each  article  with  relatively  enormous  general  ex- 


PRODUCTION.  177 

penses,  and  has  kept  prices  up  at  an  altogether  factitious  height. 
Vainly  do  improvements  in  machinery,  or  the  development  of 
international  trade,  lower  little  by  little  the  cost  price  of  a  host 
of  products ;  the  consumer  pays  not  a  stiver  the  less  for  them. 
The  retail  prices  remain  almost  the  same,  when  they  do  not  rise, 
and  the  public  does  not  benefit  by  the  progress  in  industry.  The 
difference  goes  into  the  hands  of  the  middlemen,  though  they  for 
the  most  part  do  not  gain  much  thereby,  for  the  profits  are  con- 
sumed by  the  general  expenses.  This  is  a  striking  example  of 
those  cases  previously  referred  to,  in  which  competition  causes 
dearness  instead  of  cheapness.  It  is  in  this  direction  that  we 
must  seek  for  the  explanation  of  that  constant  increase  in  the  cost 
of  living  which  is  so  justly  complained  of  by  the  public. 

The  prices  of  corn  and  of  meat  in  France  have  been  continually 
falling  for  several  years  past ;  of  this  the  competition  of  countries 
beyond  the  sea  is  the  cause,  and  the  lamentations  of  landowners 
are  the  proof.  But  the  price  of  bread  at  the  baker's  and  of 
meat  at  the  butcher's  has  only  fallen  in  an  exceedingly  small 
degree,  or  has  not  fallen  at  all,  in  consequence  of  this  multiplica- 
tion of  middlemen.  Thirty  years  ago,  Paris,  it  was  reckoned, 
had  one  baker  for  every  eighteen  hundred  inhabitants  ;  now  it  has 
one  for  every  thirteen  hundred  :  in  other  words,  each  baker  sells 
a  third  less  bread,  and,  to  compensate  for  this,  has  to  make  more 
profit  on  each  loaf.  This  is  why  he  sells  at  eight  pence  a  quartern 
loaf  which  is  worth  scarcely  more  than  five  pence  a  quartern. 

It  is  not  uncommon  for  a  tradesman  to  levy  on  a  piece  of  cloth 
sold  by  him  a  profit  higher  than  the  wages  obtained  by  the  work- 
man who  made  it ;  in  other  words,  the  labor  of  cutting  off  a  piece 
of  cloth  and  handing  it  over  to  a  customer  is  better  paid  than  the 
labor  required  for  making  it  entirely  from  hem  to  hem. 

We  should  be  astonished  if  we  reckoned  up  the  total  tribute 
levied  upon  the  public  by  middlemen.  According  to  an  inquiry 
instituted  by  the  Orleans  Railway  Company  in  1S66  on  the  goods 
they  supplied  to  their  employes,  the  difference  between  the  cost 
and  the  selling  prices  varied  between  30  and  127  per  cent.     If  we 


178  PRINCIPLES    OF    POLITICAL    ECONOMY. 

take  this  minimum  figure  of  30  per  cent,  which  is  certainly  less 
than  the  reality,  and  apply  it  to  the  total  consumption  of  France, 
which  is  under  ;^  1,000,000,000  sterling,  we  see  that  the  toll 
levied  by  the  middlemen  would  amount  to  ^300,000,000,  or  more 
than  double  what  we  pay  in  the  shape  of  taxation.  Socialists  and 
economists  alike  are  unanimous  in  denouncing  this  vice  of  our  social 
organization.     (See  Fourier  and  Paul  Leroy-Beaulieu,  passim.) 

If  we  add  to  this  serious  disadvantage  the  adulteration  of  goods 
which  is  becoming  an  actual  peril  to  the  public  health,  and  is 
equally  an  effect  of  the  bitter  competition  of  traders,  we  are  led 
to  ask  ourselves  whether  the  services  rendered  by  these  middle- 
men are  not  now  too  dearly  paid  for,  and  whether  we  cannot  find 
some  other  mode  of  organizing  exchange  which  would  be  less 
burdensome  for  society. 

The  true  remedy  would  clearly  be  to  put  producer  and  con- 
sumer in  direct  intercommunication  by  suppressing  the  middle- 
men, or  at  any  rate  by  reducing  their  numbers  to  the  minimum. 

Long  ago,  certainly  before  ever  the  class  of  traders  was  formed, 
producers  and  consumers  had  found  the  means  of  meeting  to- 
gether at  the  ffiarke/s  and  fairs  which  were  formerly  of  such 
moment,  and  are  still  not  without  some  importance  in  the  heart 
of  rural  districts.  But  we  can  never  dream  of  returning  to  such  a 
machinery  of  exchange ;  for  it  would  be  more  onerous  than  the 
employment  of  traders,  on  account  of  the  loss  of  time  and  heavy 
cost  of  carriage ;  and  its  use  is  justly  becoming  more  and  more 
discontinued.  The  famous  fair  of  Eeaucaire  is  now  nothing  more 
than  a  huge  local  market ;  but  fairs  still  hold  an  important  place 
in  those  countries  in  which  improvements  in  exchange  have  not 
yet  been  introduced.  In  the  far  east  of  Europe  the  fair  of  Nijni- 
Novgorod  does  business  to  the  figure  of  ^8,000,000  sterling,^ 
and  brings  together  200,000  persons  from  the  ends  of  the  Old 
Continent. 

1  The  amount  is  sometiines  said  to  have  diminished  since  1851.  But  Pro- 
fessor Zehden,  in  his  Hatidelsgeographie  (5th  ed.,  l886),  makes  the  figure 
■1^23,000,000  and  the  persons  300,000.  —  J.  B. 


PRODUCTION.  179 

The  greatest  difficulty  to  be  met  with  in  placing  producer  and 
consumer  in  direct  communication  is  that  the  producer  can  scarcely 
sell  retail,  whilst  the  consumer  can  still  less  buy  wholesale.  But 
this  diiificulty  can  now  be  successfully  overcome  by  association 
under  a  double  form ;  either  the  association  of  producers  who 
unite  together  to  sell  to  the  public  directly,  g.g.  "agricultural  syndi- 
cates" (see  above,  page  157)  ;  or  the  association  of  consumers  who 
unite  to  purchase  directly  from  the  producers;  that  is  the  part 
of  co-operative  societies  of  consumption  (see  below,  "  Institutions 
for  the  facilitation  of  Saving").  Both  kinds  of  societies,  which, 
moreover,  could  mutually  aid  one  another,  are  called  upon  to 
render  the  public  a  notable  service  by  completely  reforming  our 
commercial  organization.  , 

In  fine,  there  is  reason  to  think  that  the  mechanism  of  trade, 
after  having  rendered  great  services  to  society,  has  now  passed 
its  limit  in  most  civilized  countries.  To  use  a  current  expression, 
it  must  be  regarded  as  an  historical  category  which  has  had  its 
day,  and  which  it  is  the  duty  of  economic  evolution  to  successfully 
eliminate. 

VI.    Means  of  Transport. 

It  is  easy  to  conceive  of  exchange  mthout  any  change  of  place 
of  matter  ;  for  example,  when  it  is  applied  to  immovable  things ; 
or,  better  still,  when  it  is  busied  with  pure  speculation  on  com- 
modities. Nevertheless,  change  of  place  may  be  regarded  as  an 
essential  feature  of  that  particular  form  of  exchange  to  which  both 
practice  and  legal  phraseology  confine  the  name  of  "trade."  Now 
the  act  of  effecting  a  change  of  place,  i.e.  transport,  requires  much 
labor,  and  consequently  great  expense.  Every  invention,  whose 
result  is  to  facilitate  the  means  of  transport,  at  one  and  the  same 
time  aids  exchange  ;  hence  the  history  of  trade  is  in  a  measure 
identical  with  the  development  of  communication  by  sea  and  by 
land. 

The  difficulties  of  transport  are  of  various  natures,  and  may 
arise  from  several  conditions  :  — 


I  So  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Firstly,  from  distance.  Man's  genius  cannot  conquer  distance. 
He  can  in  no  wise  do  away  with  or  reduce  the  space  between  two 
points  of  the  earth ;  but  for  us  the  obstacle  of  distance  is  prac- 
tically converted  into  a  question  of  time.  Now,  human  invention 
has  been  singularly  successful  in  reducing  the  time  necessary  for 
traversing  a  given  distance.  If  the  time  required  for  travelling 
any  given  distance  in  France  is  twenty  times  shorter  to-day  than 
it  was  in  the  thirteenth  century,  we  are  perfectly  justified  in  saying 
that  the  result  obtained  is  just  as  if  France  to-day  were  four  hun- 
dred times  smaller  than  it  was  then  (for  surfaces  vary  in  propor- 
tion to  the  squares  of  the  radii).  Now,  thanks  to  railways,  this 
hypothesis  has  become  a  reality ;  we  can  therefore  say  that  the 
result  of  progress  in  effecting  rapidity  of  communication  is  to 
indefinitely  reduce  the  surface  of  the  terrestrial  globe. 

Seco7idly,  from  the  nature  of  the  coyntnodity.  An  ox  is  not  so 
readily  transported  as  vegetables ;  nor  vegetables,  as  coal ;  nor 
coal  as  easily  as  gold.  The  various  obstacles  are  weight,  fragility, 
difficulty  of  preservation ;  but  these  may  be  greatly  remedied  by 
that  rapidity  of  conveyance  we  have  just  spoken  of.  In  the  days 
of  sailing-vessels,  cattle  could  not  have  arrived,  whether  dead  or 
alive,  safe  in  harbors  from  America  or  Australia ;  such  a  thing  can 
be  effected  nowadays,  thanks  to  the  short  duration  of  the  voyage. 
Formerly,  fish,  game,  fresh-gathered  fruit  and  vegetables  could  not 
be  sent  from  the  outlying  provinces  to  Paris ;  now,  they  are  sent 
daily,  the  journey  taking  less  than  twenty-four  hours.  Putting 
aside  the  quickness  of  conveyance,  several  inventions  have  helped 
to  overcome  this  obstacle  ;  such  as  the  refrigeration  process,  which 
allows  of  the  transmission  of  fresh  meat  from  Australia ;  or  the 
chemical  process  used  for  the  preservation  of  articles  of  food  {e.g. 
smoked  meat,  Liebig's  process).  In  spite  of  all  these  things,  the 
difficulty  of  transporting  certain  objects,  particularly  meat,  has 
even  now  economic  consequences  of  considerable  importance  and 
great  inconvenience. 

Thirdly,  from  the  condition  of  the  ways  of  comviunication. 
This  is  the  most  serious  obstacle  of  all ;  but  over  it  human  industry 
has  achieved  its  greatest  success. 


PRODUCTION.  I8l 

By  sea  the  road  is  already  made,  or  rather,  there  is  no  need  of 
a  road ;  the  liquid  element  indiscriminately  bears  any  weight,  and 
its  horizontal  surface,  which  is  everywhere  alike,  allows  bodies  to 
move  freely  in  any  direction.  The  weakest  motive  force  —  an 
unpaid-for  force  if  the  wind  is  used — is  enough  to  set  in  motion 
enormous  masses.  It  is  not  surprising,  then,  that  the  sea  has 
always  been  the  high  road  of  commerce,  and  that  countries  sepa- 
rated by  a  thousand  leagues  of  sea  are  really  nearer  than  others 
divided  by  a  hundred  leagues  of  land.  Even  now,  in  spite  of  the 
progress  of  overland  carriage,  conveyance  by  sea  is  infinitely  less 
burdensome  ;  i.e.  requires  far  less  labor.  At  Marseilles,  the  Eng- 
lish coal  which  has  come  through  the  Straits  of  Gibraltar,  and  has 
thus  travelled  nearly  two  thousand  miles,  is  sold  cheaper  than  the 
coal  from  the  Grand-Combe  mines  (in  France),  which  has  only  to 
come  a  distance  of  a  hundred  and  ten  miles.  The  cost  of  carriage 
of  a  ton  by  sea  never  exceeds  one-fourth  of  a  penny  a  mile,  and 
is  often  much  lower ;  ^  while,  as  we  shall  see,  the  railway  tariff  is 
not  far  off  two  pence. 

On  land  the  difficulty  is  greater.  The  broken  surface  of  our 
planet  scarcely  permits  of  the  transport  of  goods  without  the  estab- 
lishment of  artificial  roads. 

The  improvement  of  means  of  transport,  whether  by  land  or 
by  sea,  is  shown  in  three  different  manners  :  roads  (on  land, 
macadamized  causewayed  roads,  railways,  bridges,  and  tunnels ; 
by  sea,  the  track  of  the  great  maritime  routes  according  to  the 
direction  of  winds  and  currents,  canals  such  as  those  of  Suez, 
Panama,  and  Corinth)  ;  vehicular  carriage  (on  land,  the  wonder- 
ful invention  of  the  wheel ;  by  sea,  the  substitution  of  iron  vessels 
for  wooden  ships)  ;  the  use  of  motive  power  (steam-engines  and 
locomotives).     Transport  by  caravan,  that  is  to  say,  on  men's 

^  e.g.  in  January,  1885,  wheat  could  be  carried  the  whole  way  from  San 
Francisco  to  England  for  405.  per  ton,  or  from  Odessa  for  15^.  (First  Report 
of  Royal  Commission  on  Trade  Depression,  1886,  page  169.)  For  railway 
charges,  see  a  paper  by  Mr.  J.  S.  Jeans  in  Statistical  "Journal  (London), 
December,  1886.  — J.  B. 


.l82  PRINCIPLES    OF    POLITICAL    ECONOMY. 

backs,  as  in  Africa,  or  by  beasts  of  burden,  as  in  Central  Asia, 
no  doubt  can  dispense  with  roads,  but  veliicular  carriage  cannot. 
Now  the  making  of  a  road  is  a  costly  matter,  and  is  the  more  ex- 
pensive the  better  it  is  ;  i.e.  the  more  resisting  its  surface  is  and  the 
nearer  its  direction  approaches  to  the  horizontal.  "The  railroad  is 
a  perfect  road,  but  it  is  also  the  dearest.  In  Europe  it  costs  about 
^^2  7,000  a  mile,  and  nearly  ^7000  where  it  can  be  constructed 
at  the  least  cost.  There  are  now  all  over  the  world  more  than 
350,000  miles  of  rail,  which  have  cost  at  least  ;!^6,ooo,ooo,ooo. 
Thus  an  enormous  amount  of  capital  is  sunk  in  them,  which  will 
evidently  burden  the  transport  of  goods  with  the  whole  sum  neces- 
sary for  interest  and  redemption  of  the  capital.  In  spite  of  this, 
if  there  is  enough  traffic,  that  is  to  say,  if  the  goods  carried  by  the 
railroad  are  of  large  enough  quantity,  much  saving  is  effected  in 
transport,  without  even  reckoning  the  regularity,  the  convenience, 
and  the  quickness.  The  cost  of  carriage  of  a  ton  per  mile  is  two 
pence  or  less,  while  by  road  it  would  be  five  pence  ;  thus  there  is 
a  saving  of  at  least  two-thirds.  The  average  price  asked  by  the 
[French]  railway  companies  is  less  than  two  pence,  but  we  must 
take  into  account  the  gratuitous  works  done  by  the  State  on  behalf 
of  the  companies,  which  represent  a  considerable  sum,  and  would, 
if  they  had  to  be  paid  back,  greatly  increase  the  cost  of  carriage. 
We  need  not  be  surprised  at  the  less  charge  of  railways  when  we 
reflect  that  to  do  the  same  amount  of  work  as  an  engine  attached 
to  a  goods-train,  we  should  require,  at  least,  on  an  ordinary  road, 
three  hundred  horses,  and  that  they  would  cover  ten  times  less 
distance. 

VII.     The  Breaking-up  of  Barter  into  Sale  and  Purchase. 

For  the  working  of  exchange  it  is  not  sufficient  to  have  that 
third  person,  interposed  between  producer  and  consumer,  whom 
we  call  the  trader;  we  require,  also,  a  commodity  to  act  as  a 
common  third  interposed  between  the  object  given  up  and  the 
object  acquired ;  this  we  call  money.     When  exchange  is  carried 


PRODUCTION.  183 

on  directly,  commodity  for  commodity,  it  is  termed  "  barter,"  but 
this  is  the  most  inconvenient  and  usually  the  most  impracticable 
method.  In  fact,  for  the  barter  to  be  successfully  effected,  it  is 
requisite  that  the  possessor  of  some  article  should  seek  for  some 
person  who  is  disposed  to  acquire  the  commodity  he  possesses, 
and  moreover  (a  coincidence  the  realization  of  which  is  even  more 
difficult),  who  is  willing  to  surrender  the  very  article  the  former 
needs.  Nor  is  this  all :  even  allowing  that  this  lucky  meeting  may 
occur,  it  is  also  necessary  that  the  two  objects  to  be  exchanged 
should  be  virtually  equal  in  value,  —  another  and  highly  improbable 
coincidence. 

Commander  Cameron  tells  us  what  trouble  he  had  in  buying  a 
boat  when  traveUing  in  Africa  in  1874.  "  Syde's  agent  wished 
to  be  paid  in  ivory,  of  which  I  had  none ;  but  I  found  that  Mo- 
hammed Ibn  Salib  had  ivory  and  wanted  cloth.  Still,  as  I  had  no 
cloth,  this  did  not  assist  me  greatly  until  I  heard  that  Mohammed 
Ibn  Gharib  had  cloth  and  wanted  wire.  This  I  fortunately  pos- 
sessed. So  I  gave  Ibn  Gharib  the  requisite  amount  in  wire  ;  upon 
which  he  handed  over  cloth  to  Ibn  Salib,  who  in  his  turn  gave 
Syde  Ibn  Halib's  agent  the  wished-for  ivory.  Then  he  allowed 
me  to  have  the  boat."  —  Vernev  L.  Cameron,  A//  Across  Africa, 
Vol.  I,  pages  246,  247. 

The  finding  of  a  commodity  to  serve  as  a  common  third  reme- 
dies these  inconveniences.  It  clearly  presupposes  the  establish- 
ment of  an  express  or  tacit  convention  between  men  living  in 
society ;  viz.  each  man  agrees  to  receive,  in  exchange  for  his 
products,  this  third  commodity.  Once  that  has  been  arranged, 
and  the  transaction  goes  admirably.  Let  the  third  commodity 
chosen  be  the  metal  silver.  In  exchange  for  the  commodity  I 
have  produced  and  wish  to  dispose  of,  I  willingly  accept  a  certain 
quantity  of  silver,  even  though  I  may  have  no  use  for  it.  Why  ? 
Because  I  know  that  when  I  wish  to  acquire  the  object  I  need,  I 
shall  only  have  to  offer  its  possessor  the  same  quantity  of  silver, 
and  he  will  accept  it  for  the  same  reason  as  made  me  take  it 
myself. 


184  PRINCIPLES    OF    POLITICAL    ECONOMY. 

After  what  has  just  been  said,  it  is  evident  that  every  transaction 
of  barter  can  be  broken  up  into  two  processes.  Instead  of  ex- 
changing my  commodity  A  for  your  commodity  B,  I  exchange  A 
for  silver,  to  exchange  that  silver  again  for  B.  The  first  process 
is  called  "  sale,"  the  second  "  purchase  "  (at  least  when  the  com- 
mon third  is  in  the  shape  of  actual  money) .  We  appear,  then,  to 
have  a  complication  instead  of  a  simplification.  But  a  straight 
line  is  not  always  the  shortest  road,  and  this  ingenious  detour  does 
away  with  an  incalculable  amount  of  trouble  and  labor. 

As  we  have  explained,  barter  was  rendered  impracticable  by  the 
following  circumstances  :  it  was  necessary  for  a  certain  producer 
C  to  meet  as  a  fellow-exchanger  another  person  D,  who  would  be 
inclined  at  one  and  the  same  time,  firstly,  to  acquire  the  object 
C wished  to  dispose  of;  secondly,  to  surrender  the  very  article  C 
wished  to  acquire.  Henceforth,  thanks  to  money,  the  producer 
C  will  certainly  have  to  find  some  one  wiUing  to  take  his  article, 
but  he  will  no  longer  have  to  ask  from  that  trader  D  the  article 
he  himself  needs.  For  that  he  will  have  to  apply  to  another  per- 
son, at  another  time  and  in  another  place.  It  was  the  indivisibility 
of  these  two  processes  that  made  them  difficult ;  but  the  tie  once 
broken  which  united  them,  and  each  of  them  individually  becomes 
easy  enough.  It  will  not  be  very  difiicult  to  find  some  one  who 
needs  your  commodity,  i.e.  a  buyer ;  nor  will  it  be  difficult  to  find 
a  person  willing  to  surrender  to  you  the  article  you  require,  i.e.  a 
seller. 

But  we  must  not  forget  that,  though  these  processes  are  hence- 
forth separated,  they  nevertheless  continue  to  form  a  whole,  and 
that  one  cannot  be  conceived  without  the  other.  In  our  every- 
day life  we  are  too  much  inclined  to  imagine  that  sale  and  purchase 
are  each  of  them  independent  and  self-sufficing  processes.  That 
is  an  illusion.  Every  purchase  presupposes  a  prior  sale  ;  for  before 
being  able  to  exchange  your  money  for  goods,  you  must  have  pre- 
viously exchanged  your  goods  for  money.  Inversely,  every  sale 
points  to  a  future  purchase  ;  for  if  you  exchange  your  goods  for 
money,  that  is  only  to  exchange  that  money  at  a  later  time  for 


PRODUCTION.  185 

Other  goods ;  for  what  else  could  be  done  with  it  ?  Still,  as  money 
can  be  kept  for  an  indefinite  period  without  being  used,  a  very 
long  interval  may  elapse,  —  say  several  years  or  even  several  gen- 
erations, between  the  two  acts  of  the  play,  —  between  the  sale  and 
the  complementary  purchase.  But  thought  must  connect  these 
two  acts,  and  in  reality,  in  spite  of  the  interposition  of  the  common 
third  and  the  complication  it  introduces,  every  man,  in  modern 
as  in  primitive  society,  lives  by  exchanging  his  products  or  his 
services  for  other  products. 


We  now  come  to  metallic  money.  Though  this  subject,  as  well 
as  those  of  paper  money  and  of  international  trade,  ought  to  be 
treated  in  the  same  chapter  as  exchange,  with  which  they  are 
directly  connected,  yet  in  consequence  of  the  full  discussion  they 
require,  we  are  obliged  to  devote  to  them  as  many  special 
chapters. 


CHAPTER   IV. 
METALLIC    MONEY. 

I.    Why  the   Precious  Metals  have  been  chosen   as   the 
Instrument  of  Exchange. 

The  purpose  of  serving  as  the  medium  of  exchange  has  not 
been  assigned  to  objects  in  consequence  of  any  express  agree- 
ment, but  certain  substances  have  forced  themselves  upon  men's 
choice  because  of  particular  advantages  which  fitted  them  for  so 
high  a  function. 

In  patriarchal  societies  it  was  the  universally  sought-for  wealth, 
cattle,  whether  kine  or  sheep,  which  appears  to  have  filled  this 
part  of  "  third  "  commodity,  and  many  of  the  Indo-European  lan- 
guages, and  even  the  Basque  tongue,  have  handed  down  to  us  the 
remembrance  of  this  early  form  of  money  in  the  very  name  which 
they  give  to  it.  The  most  familiar  instance  of  this  is  the  Latin 
fecunia,  which  originally  meant  cattle  or  herds. 

In  other  countries  and  according  to  circumstances  many  other 
commodities  have  served  as  a  common  third ;  e.g.  rice  in  Japan, 
bricks  of  tea  in  Central  Asia,  furs  in  the  Hudson  Bay  Territory, 
glass  beads  and  pieces  of  cotton  in  Central  Africa,  salt-bars  in  the 
Kingdom  of  Dahomey ;  but  a  certain  class  of  objects  have  had 
the  privilege  of  attracting  man's  attention  in  all  societies  which 
are  in  the  least  degree  civilized,  and  have  not  been  long  in  de- 
throning every  other  article.  I  refer  to  the  metals  which  we  call 
precious,  —  gold,  silver,  and  copper. 

Thanks  to  their  chemical  properties,  which  make  them  com- 
paratively inoxidizable,  they  have  been  granted  us  by  nature  in  a 
crude  state,  and  thus  men  have  known  and  used  them  before  their 
metallurgical  attainments  enabled  them  to  become  acquainted 
1 86 


PRODUCTION.  187 

with  and  use  other  metals,  such  as  iron.  It  is  remarkable  that 
the  old  legend  of  the  four  ages  of  Gold,  of  Silver,  of  Bronze,  and 
of  Iron,  places  the  four  metals  in  the  very  order  in  which  man 
must  have  become  acquainted  with  them.  Their  no  less  note- 
worthy physical  properties,  brilliancy,  color,  and  malleability,  which 
have  made  them  the  objects  of  search  from  an  early  date  either 
for  ornament  or  for  some  industrial  labors,  would  also  account  for 
the  important  part  they  have  played  in  all  times  and  with  all 
peoples. 

Nevertheless  they  owe  the  undisputed  position  they  hold  to-day 
in  consequence  of  higher  qualities  and  of  a  manifest  superi- 
ority over  every  other  commodity. 

This  superiority  as  a  "  third  "  commodity  arises  from  the  following 
causes  (we  have  already  seen  the  somewhat  different  causes  which 
justified  the  superiority  of  the  precious  metals,  not  as  the  instru- 
ment of  exchange,  but  as  the  measurers  of  value.  These  are  not 
absolutely  the  same.     See  pages  74,  75)  :  — 

Firstly,  easiness  of  transport.  No  other  object  has  so  great  a 
value  in  so  small  a  weight.  The  weight  that  a  man  can  easily  carry 
upon  his  back  is  just  about  half  a  hundredweight.  Now  more 
than  half  a  hundredweight  of  coal  is  hardly  worth  lod. ;  of  corn, 
5^-. ;  of  wool,  from  20^.  to  30^-. ;  of  copper,  42^-. ;  of  ivory,  j[^2^ 
to  ;^3o;  of  raw  silk,  ^50;  of  silver,  ;^i50  to  ;^20o;  and  of 
fine  gold,  ^3400. 

Secondly,  identity  of  quality.  The  precious  metals  being,  chemi- 
cally speaking,  simple  substances,  are  always  of  identical  compo- 
sition. An  experienced  merchant  will  be  able  to  distinguish 
Odessa  from  California  corn,  or  a  tuft  of  wool  from  an  Australian 
sheep  from  one  taken  from  the  back  of  a  Spanish  merino ;  but 
the  most  skilful  goldsmith  or  the  chemist  armed  with  the  most 
powerful  reagents  will  find  no  difference  between  Australian  gold 
and  gold  from  the  Ural  Mountains.  Here  there  is  no  need  of 
samples. 

Thirdly,  difficulty  of  counterfeiting.  The  precious  metals  are 
recognizable  at  one  and  the  same  time  by  eye,  ear,  and  touch. 


l88  PRINCirLES    OF    POLITICAL    ECONOMY. 

from  their  color,  weight,  and  ring,  and  are  readily  distinguished 
from  all  other  bodies. 

Fourthly,  perfect  divisibility.  This  divisibility  must  be  under- 
stood not  only  in  the  mechanical  sense  (for  gold  and  silver  are 
wonderfully  divisible  either  into  threads  or  into  plates),  but  also 
in  the  economic  sense.  Divide  an  ingot  into  a  hundred  parts, 
and  you  do  not  alter  its  value  in  the  least;  the  value  of  each 
fragment  is  exactly  proportional  to  its  weight,  and  the  value  of 
all  the  fragments  put  together  is  exactly  that  of  the  original  ingot. 

Precious  stones  are  superior  to  the  precious  metals  in  the  first 
of  the  above  requirements,  viz.  great  value  in  small  bulk,  but  in 
all  the  rest  they  are  much  behind.  They  are  very  variable  in 
quality,  liable  to  be  successfully  imitated,  and  in  particular  cannot 
be  divided  without  their  value  being,  so  to  speak,  annihilated. 

Fifthly,  indefinite  durability.  In  consequence  of  their  chemical 
properties,  which  make  them  refractory  to  almost  all  chemical 
combinations,  and  especially  to  oxidization,  gold  and  silver  can  be 
kept  for  an  indefinite  period  unchanged.  There  is  no  other  body 
of  which  that  can  be  said,  and,  when  it  refers  to  a  body  which  is 
to  typify  and  to  store  wealth,  it  is  an  incomparable  advantage. 

II.    The  Invention  of  Coined  Money. 

It  is  one  thing  to  employ  the  precious  metals  as  instruments 
of  exchange  ;  it  is  another  matter  to  use  actual  money.  This  has 
required  an  evolution  which  has  passed  through  several  very  dis- 
tinct stages. 

Firstly.  A  beginning  was  made  by  the  use  of  the  precious  metals 
in  the  shape  of  raw  ingots;  in  every  act  of  exchange,  therefore, 
these  ingots  had  first  to  be  weighed,  and  then  to  be  assayed.  The 
legal  forms  of  the  ancient  Roman  law,  such  as  maiicipatio  with 
its  libripens,  remind  us  of  the  days  of  the  weighing  of  the  instru- 
ment of  exchange,  whether  silver  or  bronze.  Even  now  in  China, 
where  coined  money  is  not  in  use,  traders  carry  their  scales  and 
touch-stone  hanging  from  their  girdles.     Compare  with  this  what 


PRODUCTION.  189 

Lenormant  says  in  the  first  chapter  of  his  Monnaies  et  Medailles. 
"  Great  and  powerful  empires  Uke  those  of  Egypt,  Chaldaea,  and 
Assyria,  passed  thousands  of  years  in  wealth  and  prosperity,  with  as 
extensive  commercial  relations  as  can  have  been  carried  on  by  any 
nation  of  antiquity;  they  constantly  employed  the  precious  metals 
in  business  matters,  but  were  absolutely  ignorant  of  the  use  of 
money." 

Secondly.  Growing  weary  of  performing  this  double  operation  at 
each  exchange,  men  conceived  the  idea  of  using  cut  ingots,  whose 
weight  and  standard  were  fixed  beforehand,  and  guaranteed  for 
use  by  some  official  seal  or  stamp.  The  lawgiver  who  conceived 
this  brilliant  idea  may  justly  boast  of  having  really  invented 
money ;  from  that  time  forward  ingots  are  no  longer  weighed,  but 
are  counted ;  .th.\s  tale  or  counting  is  the  special  characteristic  of 
money.  The  Greek  race,  to  whom  mankind  owes  so  many  fertile 
ideas,  must  also  claim  the  honor  of  this.  Specimens  are  still  ex- 
tant of  silver  money  from  the  isle  of  ^gina,  and  of  a  gold  coinage 
from  Lydia,  both  almost  contemporaneous,  seven  hundred  or  eight 
hundred  years  B.C.,  and  having  the  ovoid  form  of  the  primitive 
ingot.^  It  is  difficult  to  tell  which  was  the  earlier  of  the  two.  In 
China,  ingots  sometimes  bear  the  trade-mark  of  certain  business 
houses,  which  certifies  to  their  weight  and  standard. 

Thirdly.  There  was  still  another  step  to  be  taken.  Not  only  is 
the  cubical  or  the  irregular  shape  of  the  ingot  an  inconvenient  one, 
but  also,  in  spite  of  the  impression  of  the  stamp,  nothing  is  easier 
than  to  clip  the  coin  without  leaving  any  traces  of  this  debasing. 
It  would  always  be  prudent  to  weigh  it  to  make  sure  of  its  being 
intact.  To  remedy  these  practical  difficulties  men  have  been  led 
to  adopt  that  form  of  coined  money  which  is  familiar  to  all  civil- 
ized people  ;  to  wit,  small  discs  covered  with  impressions  in  relief 
on  the  whole  of  the  surface,  on  face,  reverse,  and  edge,  so  that  the 

^  The  gradual  change  in  the  oval  or  bean-shaped  ingot  with  the  anvil  stamp 
upon  it  is  traced  by  Mr.  C.  F.  Keary  in  his  paper  on  the  "  Morphology  of 
Coins"  (^Numismatic  Chronicle  (London),  Vol.  V,  3d  series,  pp.  165  setj., 
,885-6).-].  B. 


igO  PRINCIPLES    OF    POLITICAL    ECONOMY. 

piece  cannot  be  tampered  with  without  simultaneous  alteration 
of  the  design  which  covers  it  entirely.  Henceforward  that  type 
of  the  piece  of  money  has  been  reached  which  for  centuries  has 
not  been  sensibly  modified,  and  for  which  we  can  adopt  the  defi- 
nition given  by  Stanley  Jevons,  "  Coins  are  ingots  of  which  the 
weight  and  fineness  are  guaranteed  by  the  State,  and  certified  by 
the  integrity  of  designs  impressed  upon  the  surfaces  of  the  metal." 
^  Money,  page  57. 

in.    The  Conditions  to  be  fulfilled  by  All  Good  Money. 

All  legal  money  should  have  an  intrinsic  value  rigorously  equal 
to  its  nominal  value. 

We  know  that  money  has  a  twofold  function  conferred  on  it  by 
law,  that  of  being  the  only  instrument  of  purchase  and  of  pay- 
ment ;  in  other  words,  it  cannot  be  refused  in  payments,  either 
by  sellers  or  by  creditors.  This  privilege  is  what  is  called  legal 
tender.  But  this  privilege  involves  another  condition,  which  we 
have  just  referred  to.  Here  is  a  20-franc  gold  piece.  In  engrav- 
ing on  this  coin  the  figure,  20  francs,  at  the  same  time  as  the 
national  arms,  the  government  certifies  that  the  piece  really  has 
the  value  of  20  francs,  and  that  it  may  be  received  by  all  men  in 
full  confidence.  If  the  coin  has  not  the  value  ascribed  to  it,  the 
State  is  committing  a  clear  fraud.  Unfortunately  for  many  cen- 
turies governments  were  not  too  scrupulous  as  to  this  matter,  but 
nowadays  it  involves  a  question  of  national  dignity  and  loyalty  to 
obligations  in  which  no  government  would  dare  to  be  found 
lacking. 

Every  piece  of  money,  therefore,  must  be  looked  at  in  a  double 
light.  In  its  capacity  of  coined  money,  it  has  a  fixed  value  which 
is  inscribed  on  one  of  its  faces.  As  ingot,  its  value  is  proportional 
to  the  market  price  of  the  metal ;  for  there  are  markets  and 
quoted  prices  for  gold  and  silver  just  as  there  are  for  corn  or 
cotton. 

Every  time  that  these  two  values  coincide,  e.g.  every  time  the 


PRODUCTION,  191 

little  ingot  of  6  grammes  45 1  milligrammes  of  the  fineness  of  9 
parts  out  of  10,  which  constitutes  the  French  20-franc  piece,  has  a 
market-value  of  20  francs  (which  corresponds  to  the  rate  of  3444 
francs  for  a  kilogramme  of  pure  gold),  the  money  can  be  said  to 
be  good,  or,  technically  speaking,  right. 

It  appears,  however,  that  the  gold  ingot  when  once  coined 
should  be  worth  a  little  more  than  the  raw  ingot,  for  the  same 
reason  as  every  object  is  worth  more  when  manufactured  than  when 
in  the  raw  state ;  and  the  difference  should  be  equal  to  the  cost  of 
making.  Money,  too,  is  really  in  the  same  case,  but  the  expenses 
of  manufacture  are  so  small  that  no  sensible  difference  is  made. 
The  Paris  Mint  charges  6  francs  70  centimes  for  coining  a  kilo- 
gramme of  gold  into  money,  or  about  0.2  per  cent.  Thus  in  every 
20-franc  piece  there  is  a  difference  of  about  4  centimes  between 
the  value  of  the  coin  and  that  of  the  ingot.  This  slight  difference 
might  be  avoided  by  the  State  gratuitously  converting  the  ingot 
into  money ;  i.e.  by  itself  incurring  the  expenses  of  coinage.  This 
is  just  what  is  done  by  England,  and  the  English  sovereign  is  thus 
the  type  of  a  perfect  money.  Its  legal  value  and  its  market  value 
are  exactly  identical. 

If  the  value  of  the  ingot  is  higher  than  that  of  the  coin,  if,  for 
instance,  the  gold  is  legally  worth  only  20  francs,  and  the  weight 
of  fine  metal  it  contains  is  worth  21  or  22  francs,  the  money  is 
said  to  be  heavy.  That  is  an  excellent  fault ;  but  still  it  is  a  fault, 
and,  as  we  shall  see,  may  have  rather  serious  consequences.  Yet 
we  need  not  trouble  very  much  as  to  such  an  eventuality-  Firstly. 
Because  it  will  not  often  happen  that  a  government  will  strike  too 
heavy  money ;  if  it  does  so,  it  can  only  be  inadvertently,  for  that 
operation  clearly  causes  a  loss.  To  coin  gold  pieces  of  20-francs' 
worth  from  ingots  worth  21  or  22  would  be  as  ruinous  as  for  a 
manufacturer  to  make  rails  at  j[^\  a  ton  out  of  iron  worth  ^4  <)s. 
Secondly.  Even  admitting  that  the  event  does  come  to  pass,  in 
consequence  of  certain  circumstances  to  be  investigated  later  on 
{e.g.  a  rise  in  the  price  of  metal  supervening  on  coinage),  it  cannot 
last  long ;  for,  if  it  were  known  that  the  20-franc  piece  were  worth 


192  PRINCIPLES    OF    POLITICAL    ECONOMY. 

21  or  2  2  francs  as  bullion,  every  one  of  us,  in  order  to  realize  this 
profit,  would  hasten  to  treat  our  money  as  merchandise,  and  sell 
it  by  weight,  and  this  operation  would  continue  till  the  gold  pieces 
had  altogether  disappeared.  This  situation,  we  shall  see  later  on, 
occurs  not  infrequently  in  countries  using  a  bimetallist  system. 

If,  on  the  other  hand,  the  value  of  the  ingot  is  less  than  that  of 
the  coin,  if,  for  example,  when  the  coin  is  legally  worth  20  francs, 
the  weight  of  metal  it  contains  is  worth  only  18  or  19  francs,  the 
money  is  said  to  be  light. 

Two  reasons  make  this  eventuality  more  to  be  dreaded  than  the 
other  one. 

Firstly.  Inversely  to  the  preceding,  it  may  lead  a  government 
into  temptation.  To  make  20-franc  pieces  out  of  ingots  that  are 
only  worth  18  or  19  is  an  alluring  undertaking  for  a  needy  and 
not  too  scrupulous  government ;  and  numerous  governments,  in 
truth,  have  succumbed  to  the  temptation.  It  is  enough  to  recollect 
the  epithet  of  "  base  coiner  "  with  which  public  resentment  has 
stigmatized  the  memory  of  several  kings  of  France,  —  Philip  the 
Fair,  for  instance.  " Falsarii  piiblici"  was  the  term  used  of  such 
kings. 

It  is  well  known  that  the  monetary  unit  under  the  old  rcgifnc  of 
France  was  called  the  livre  (pound)  ;  but  it  is  not  so  generally 
known  that  this  derived  its  name  from  the  fact  that  originally, 
say  in  the  days  of  Charlemagne,  it  actually  represented  the 
weight  of  a  pound  of  silver  (the  Carolingian  pound  of  only  408 
grammes)  ;  i.e.  it  represented  a  value  equal  to  that  of  more  than 
82  present-day  francs  (making  allowance  for  all  variation  in  the 
purchasing  power  of  money) .  How  has  it  fallen  time  after  time 
down  to  that  weight  of  five  grammes  which  was  the  weight  of 
the  livr€  at  the  end  of  the  old  regime,  and  has  become  that  of  the 
present_/nz«^  /  Solely  by  a  continual  series  of  emissions  of  ever 
lighter  and  lighter  money.  Each  monarch  clipped  a  little  off  the 
weight  of  the  old  livre  (pound)  while  endeavoring  to  preserve  its 
former  legal  value.  The  history  of  the  English  pound  is  almost 
the  same,  though  a  trifle  more  honorable  to  the  governments  of 


PRODUCTION.  193 

England ;  for  having  started  from  the  same  point  of  departure  as 
the  livre,  it  has  stopped  at  the  value  of  25  francs,  which  is  its 
present  value. 

Secondly.  Further,  once  such  light  money  has  entered  into  cir- 
culation, it  is  not  forced  out  by  the  stress  of  circumstances  as 
occurs  with  heavy  money ;  on  the  contrary,  as  will  be  seen  when 
we  come  to  Gresham's  Law,  all  the  trouble  in  the  world  is  neces- 
sary to  get  rid  of  it. 

To  maintain  the  equivalence  of  the  values  of  the  ingot  and  of 
the  coin,  it  is  customary  under  every  good  monetary  system  to 
grant  to  every  one  who  desires  to  convert  an  ingot  into  money  the 
opportunity  of  so  doing,  of  course  not  at  his  own  house,  but 
through  the  agency  of  the  Mint.  This  is  called  "  liberty  of  coinage." 
As  long  as  this  exists,  it  guarantees  the  equivalence ;  for  if  the 
value  of  the  gold  piece  ever  became  higher  than  that  of  the  ingot, 
every  man  would  hasten  to  avail  himself  of  the  profit  which  would 
arise  from  the  making  of  this  money.  Every  one  would  buy  gold 
ingots,  and  take  them  to  the  Mint  to  have  them  converted  into 
coin  until  the  diminution  in  the  supply  of  the  metallic  gold  and 
the  increase  in  coined  gold  had  restored  equality  between  the  two 
values. 

Still,  in  all  countries  there  are  certain  kinds  of  coins  which  do 
not  satisfy  the  condition  which  heads  this  section ;  i.e.  their 
intrinsic  value  is  more  or  less  inferior  to  their  legal  value.  These 
are  called  "  token  "  money.  They  are  usually  coins  of  little  value, 
generally  copper,  but  sometimes  also  silver,  which  are  not  custom- 
arily used  for  important  payments,  but  only  as  odd  amounts.  On 
these  conditions  we  may  depart  without  inconvenience  from  strict 
principles.  In  France,  contrary  to  the  common  belief,  it  is  not 
only  copper  pieces  which  are  token  money,  but  also  all  the  silver 
pieces  except  ^t  five-franc  piece.  The  intrinsic  value  of  the  one- 
sou  piece  is  no  more  than  one  centime ;  that  of  the  silver  franc 
piece  is  no  more  than  75  centimes.  We  must  note  that  copper 
pieces  could  not  receive  an  intrinsic  value  equal  to  their  nominal 
valae  without  being  burdened  with  very  great  weight,  about  five 


194  PRINCIPLES    OF    POLITICAL    ECONOMY. 

times  greater  than  the  actual,  which  would  be  exceedingly  incon- 
venient. There  is  another  reason,  as  we  shall  see  later  on,  for 
forcing  the  government  to  convert  silver  coins  into  token  money. 

Although  the  law  gives  up  the  strict  principle,  it  still  respects  it 
in  a  way  by  refusing  to  all  token  money  the  character  of  legal 
money.  No  one  is  compelled  to  receive  it  in  payment.  For 
copper  pieces  the  limit  is  a  sum  higher  than  five  francs,  for  sil- 
ver pieces  (except  the  five-franc  piece)  a  sum  above  loo  francs. 
In  these  cases  the  French  law  suspends  liberty  of  coinage,  for 
without  this  every  one  would  coin  this  token  money  to  gain  the 
difference  between  its  real  and  its  legal  value.  The  government 
reserves  to  itself  the  right  of  issuing  a  large  enough  quantity  to 
satisfy  public  requirements,  and  should  make  it  a  rule  never  to 
issue  too  large  a  quantity. 

IV.     Gresham's  Law. 

"  In  every  country  where  two  legal  moneys  are  in  circulation, 
the  bad  money  always  drives  out  the  good." 

In  these  terms  is  expressed  one  of  the  most  curious  of  the  laws 
of  political  economy,  which  has  been  named  ^  after  the  commercial 
adviser  of  Queen  Elizabeth,  who  is  credited  with  its  discovery 
three  centuries  ago.  But  long  before  him,  Aristophanes,  in  the 
Frogs,  had  pointed  out  and  carefully  analyzed  this  curious  fact ; 
viz.  the  preference  men  always  have  for  bad  money. 

"The  ])ublic  has  often  seemed  to  us  to  treat  the  wisest  and  the  best  of  our 
citizens  just  as  it  does  old  and  new  coins.  For  we  do  not  use  the  latter  at  all, 
except  in  our  own  houses  or  abroatl,  though  they  are  of  purer  metal,  finer  to 
look  at,  the  only  ones  that  are  well  coined  and  round;  on  the  contrary,  we 
prefer  to  use  vile  copper  pieces,  struck  and  stamped  in  the  most  infamous 
fashion."  —  Aristoi'hanes,  Frogs,  vv.  718-726  (Brunck's  ed.). 

The  particular  strangeness  of  this  fact  and  of  the  law  which 
expresses  it,  arise  from  the  circumstance  that  it  would  be  incom- 
prehensible in  the  case  of  any  other  article.     It  would  be  impos- 

1  Mr.  H.  D.  Macleod  first  gave  currency  to  the  expression  "  Gresham's  Law." 
It  is  simply  a  particular  case  of  the  general  ])rinciple,  "  greatest  gain  with  least  out- 
lay" ;  "  buy  in  the  cheapest  market  and  sell  in  the  dearest." 


PRODUCTION.  195 

sible  to  understand  how  it  was  that  men  should  have  such  bad 
taste  as  to  prefer,  in  general,  bad  to  good  merchandise.  The  eco- 
nomic organization  of  all  our  societies  which  possess  liberty  of 
labor  and  competition  can  only  work  in  so  far  as  we  grant  as  an 
axiom  the  very  opposite ;  viz.  that  under  all  circumstances  men 
will  prefer  the  product  which  is  of  the  better  quality  and  of  the 
higher  value.  Why  reverse  this  when  money  is  the  article  in 
question  ? 

Our  astonishment  vanishes  when  we  reflect  that  money  is  not, 
like  other  wealth,  destined  either  for  our  consumption  or  for  pro- 
duction, but  is  merely  for  exchange.  Of  two  fruits,  we  prefer  the 
more  luscious  ;  of  two  machines,  the  one  which  works  the  better ; 
but  of  two  pieces  of  money  of  unequal  quality  it  matters  little  to 
us  whether  we  employ  one  or  the  other,  for  they  are  not  for  our 
personal  use,  and  are  only  to  pay  our  creditors  and  our  tradesmen. 
Now,  we  have  no  motive  to  choose  the  better  article  for  this  pur- 
pose ;  on  the  contrary,  it  is  to  our  interest  to  choose  the  worse, 
and  we  do  not  fail  to  consult  our  interest.  The  only  condition  is, 
that  the  creditor  or  tradesman  shall  not  be  able  to  refuse  it ;  in 
other  words,  that  the  bad  money  shall  have  paying  power  as  well  as 
the  good.  It  is  on  this  very  hypothesis  that  Gresham's  Law  is  appli- 
cable ;  i.e.  when  both  of  the  moneys  in  question  are  legal  moneys. 

The  foregoing  explains  why  the  bad  money  remains  in  circu- 
lation, but  not  why  the  good  disappears.  What  becomes  of  it, 
then? 

It  goes  in  three  different  ways :  by  hoarding ;  by  selling  by 
weight ;  and  by  payments  to  the  foreigner. 

Firstly.  Hoarding.  When  people  want  to  lay  by  money  for 
possible  emergencies,  i.e.  when  they  wish  to  keep  it  for  them- 
selves, they  comply  with  the  general  rule  and  are  careful  not  to  fix 
their  choice  on  bad  pieces.  On  the  contrary,  they  choose  the  best, 
because  it  is  these  that  offer  them  the  most  security.  The  panic- 
stricken  people  who  wished  to  hoard  money  during  the  French 
Revolution  did  not  waste  their  time  in  hoarding  assignats,  but  laid 
hold  of  good  louis  d'or.     In  this  manner,  especially  at  critical 


196  PRINCIPLES    OF    POLITICAL    ECONOMY. 

times,  a  considerable  amount  of  the  best  money  may  disappear 
from  circulation.  Still,  this  first  cause  of  loss  is  a  comparatively 
trivial  one,  and  in  any  case  does  not  last  for  a  long  time. 

Secondly.  Payineiits  to  the  foreigner  have  a  greater  effect. 
Although  a  country  need  never  pay  in  coin  for  more  than  a  small 
part  of  its  imports,  still  it  has  always  to  send  abroad  remittances 
in  specie.  Now,  though  to  pay  our  home  debts  to  our  fellow- 
citizens  we  have  by  law  the  opportunity  of  using  bad  money  as 
well  as  good,  this  alternative  fails  us  when  we  have  to  settle  for  a 
purchase  made  abroad.  As  the  foreign  creditor  is  by  no  means 
obHged  to  accept  our  money,  he  will  only  take  it  for  the  weight  of 
fine  metal  it  contains ;  i.e.  for  its  actual  value.  Therefore,  we  can- 
not dream  of  sending  him  light  money.  Let  us  keep  that,  then,  for 
home  trade,  since  in  that  quarter  it  is  as  serviceable  as  the  other, 
and  let  us  reserve  the  good  money  for  foreign  trade.  This  is  the 
second  and  a  highly  important  cause  of  the  loss  of  good  money. 
It  is  curious  that  Aristophanes  had  already  noticed  the  fact  that 
the  public,  which  prefers  bad  money,  employs  good  money  "  for 
indoor  use  [hoarding]  and  outside  the  frontiers  [foreign  trade]." 

Thirdly.  But  the  cause  of  the  most  rapid  disappearance  of 
good  money  is  sale,  sale  by  weight.  Selling  money  by  weight ! 
Surely  that  appears  to  be  a  curious  business,  and  its  use  does  not 
seem  easy  to  explain.  Nevertheless,  it  is  very  simple.  As  soon 
as,  in  consequence  of  a  rise  in  the  value  of  gold,  the  gold  coin 
acquires  an  intrinsic  value  which  is  higher  than  its  legal  value,  — 
as  soon  as  it  is  worth  more  as  an  ingot  than  as  a  coin,  —  it  is 
clearly  to  people's  interest  to  cease  to  use  it  as  a  coin,  and  to 
employ  it  as  bullion.  It  is  therefore  withdrawn  from  circulation, 
and  finds  its  way  to  the  market  for  precious  metals.  If  the  value 
of  bronze  were  to  rise  a  great  deal,  is  it  not  almost  certain  that 
niim.erous  articles  made  of  bronze,  such  as  bells,  cannons,  statu- 
ettes, etc.,  would  be  melted  down,  so  as  to  realize  the  value  of  the 
metal  they  contain?  Or  further,  if  we  suppose  that  the  value  of 
paper  was  to  increase  very  much,  would  not  many  books  be  pulled 
down  from  library  shelves  to  be  sold  by  weight  to  the  waste- 


PRODUCTION.  197 

paper  dealer?  It  is  just  the  same  with  money.  When  the  pre- 
cious metal  rises  in  value,  the  pieces  of  money  coined  from  that 
metal  lose  their  character  of  money,  and  become  articles  of  mer- 
chandise that  all  men  hasten  to  realize ;  i.e.  to  sell. 

Gresham's  Law  is  applicable  in  the  following  cases  : 

Firstly.  Every  time  that  a  worn  money  is  in  circulation  together 
with  a  newly  coined  money. 

It  was  under  such  circumstances  that  the  law  was  observed  by 
Sir  Thomas  Gresham.  At  that  time  a  new  coinage  had  been 
struck  to  replace  what  was  then  in  circulation,  which  was  alto- 
gether depreciated  far  more  from  clipping  than  from  wear ;  and 
it  was  noted  with  dismay  that  new  coins  speedily  disappeared 
whilst  the  old  ones  were  more  abundant  than  ever. 

Unless,  then,  a  government  resorts  to  frequent  new  coinages,  it 
will  later  on  encounter  great  difficulties  in  replacing  the  old  and 
worn-out  coinage  by  the  new. 

Secondly.  Every  time  that  a  depreciated  paper  money  is  in  cir- 
culation together  with  a  metallic  money. 

Under  these  conditions,  if  the  depreciation  of  the  paper  is  even 
for  the  shortest  time  at  all  serious,  the  coin  is  driven  out  on  the 
largest  possible  scale.  Thus,  of  late  years  the  whole  of  the  Italian 
money  was  driven  into  France.  Vainly  did  the  Italian  government 
adopt  various  measures  to  cause  its  return,  and  even  obtain  from 
the  French  government  an  interdiction  on  its  circulation  in  France. 
They  would  never  have  succeeded  had  they  not  attacked  the  evil 
at  its  root  by  withdrawing  the  paper  money,  or  at  least  denying  to 
it  its  forced  circulation. 

We  have  seen  the  two  countries  which  are  the  producers  of  the 
precious  metals,  the  United  States  and  Russia,  fail  in  their  attempt 
to  keep  at  home  that  metallic  money,  the  raw  material  of  which 
they  furnished  to  the  whole  world.  Useless  were  their  endeavors 
to  strike  a  new  coinage ;  it  was  always  pitilessly  driven  out  by 
their  depreciated  paper  money. 

Thirdly,  Every  time  that  a  light  money  is  in  circulation  together 
with  a  right  money,  or  even  when  a  right  money  is  in  circulation 
together  with  a  heavy  money. 


198  PRINCIPLES    OF    POLITICAL    ECONOMY. 

In  this  case,  the  lighter  of  the  two  moneys  drives  out  the  other. 
This  is  by  far  the  most  important  of  the  three  cases ;  it  occurs  in 
almost  all  the  countries  which  adopt  at  one  and  the  same  time 
both  a  gold  and  a  silver  coinage.  This  case  will  be  examined  in 
the  discussion  of  monometallism  and  bimetallism,  of  which  we 
propose  to  speak  in  the  ensuing  section. 


THE   QUESTION    OF   MONOMETALLISM   AND   BIMETALLISM. 

I.    The  Necessity  of  taking  Several  Metals,  and  the 
Resulting  Difficulties. 

The  discussion  which  has  long  been  waged  over  this  celebrated 
subject  does  not,  as  might  be  thought,  turn  upon  the  question, 
whether  a  country  should  employ  several  metals  in  its  monetary 
system,  or  should  content  itself  with  only  one.  That  question 
does  not  even  arise ;  for  it  is  evident  that  every  civilized  country 
is  obliged  to  employ  at  the  same  time  gold  coins,  silver  coins,  and 
coins  either  of  copper  or  of  some  similar  metal.  For  example  : 
how  could  one  dream  of  using  gold  alone  ?  The  gold  five-franc 
piece  used  in  France  is  of  itself  inconvenient  enough  because  of  its 
smallness :  what,  then,  would  be  a  gold  sou  ?  A  mere,  impalpable 
grain  !  Far  less,  unless  we  were  to  revert  to  the  days  of  Lycur- 
gus,  could  we  dream  of  using  only  copper;  for  a  twenty-franc 
piece  in  copper  would  weigh  half  a  score  of  kilogrammes.  Even 
silver,  though  less  inconvenient  on  account  of  its  intermediate 
value,  would  not  suffice  by  itself;  for  the  five-franc  piece  is  already 
too  large,  and  the  twenty-centimes  piece  is  too  small  for  ordinary 
use.  We  are  obliged,  then,  to  use  all  three  metals  at  the  same 
time. 

But  there  is  no  necessity  to  use  all  three  as  legal  money ;  in  fact, 
we  know  that  one  of  them,  copper,  has  never  that  quality,  and  is 
always  token  money  or  small  change.    The  other  two,  then,  are  to 


PRODUCTION.  199 

be  dealt  with.  Are  both  of  them  to  receive  the  character  and 
attributes  of  legal  money,  or  is  one  only?  This  is  what  used  to 
be  called  the  question  of  the  single  or  the  double  standard,  but 
it  is  now  more  correctly  termed  monometallism  or  bimetallism. 

If  we  grant  the  title  of  legal  money  to  only  one  of  the  two,  — 
say  gold,  —  there  is  then  no  difficulty.  The  silver  coinage,  like 
the  copper  coinage,  is  relegated  to  the  rank  of  token  money ;  a 
purely,  conventional  value  is  given  it,  but  no  one  is  obliged  to 
receive  it  in  payment.  The  gold  coinage  is  the  only  one  which 
has  legal  tender,  and  for  which  we  need  trouble  to  maintain  a 
perfect  equivalence  between  its  legal  and  its  intrinsic  value. 

If  we  allow  both  coinages  to  assume  the  character  of  legal 
money,  the  situation  becomes  far  more  complicated.  For  a  better 
understanding  of  these  difficulties  let  us  take  the  French  system, 
which  may  be  regarded  as  the  type  of  the  bimetallist  system,  and 
look  back  to  the  time  when  it  was  entirely  reconstructed  by  the 
legislature  (the  law  of  7th  Germinal,  An  XI,  March  28th,  1803). 

The  unit  of  money  was  the  old  livre,  converted  into  francs. 
It  was  a  silver  piece,  and  silver  was  therefore  taken  as  legal  money ; 
indeed,  at  that  time  none  would  have  dreamt  of  denying  it  that 
title.     The  same  character  had  also  to  be  allowed  to  gold. 

For  the  sake  of  clearness  let  us  take  the  two  similar  coins  which 
are  both  of  them  to  be  found  in  the  French  monetary  system,  — 
the  silver  five-franc  piece  and  the  gold  five-franc  piece.  We  desire 
both  of  these  to  be  legal  money.  It  is  necessary,  then,  for  both 
of  them  to  possess  an  intrinsic  value  which  is  rigorously  equal  to 
their  legal  value ;  that,  as  we  know,  is  a  sine  qua  non.  It  is  not 
difficult  to  satisfy  this  condition  as  far  as  concerns  the  silver  coin. 
Silver  is  worth,  or  at  any  rate  was  worth  at  the  date  we  have 
harked  back  to,  200  francs  a  kilogramme  ;  an  ingot  of  25  grammes, 
therefore,  was  worth  exactly  five  francs ;  we  must  consequently 
give  a  weight  of  25  grammes  to  our  silver  five-franc  piece.  With 
regard  to  that,  then,  the  requisite  condition  has  been  fulfilled. 
But  what  weight  must  we  give  to  our  gold  five-franc  piece  ?  At 
that  time  a  kilogramme  of  gold  was  worth  3100  francs  (of  the 


20O  PRINCIPLES    OF    POLITICAL    ECONOMY. 

same  fineness  as  the  silver  coin,  9  parts  in  10).  If,  then,  620 
coins  are  struck  from  one  kilogramme  of  gold,  each  of  them  will 
be  worth  exactly  5  francs  (for  620  x  5  =  3100),  and  will  weigh 
1.6 1 3  gramme.  For  the  gold  piece,  too,  the  necessary  condition 
will  have  been  complied  with. 

Let  us  take  these  two  coins  and  place  them  in  the  scales  of  a 
balance ;  we  shall  see  that  to  keep  in  equilibrium  the  silver  piece, 
we  must  put  in  the  other  scale  1 5  gold  pieces,  with  a  half  over ;  or, 
if  the  reader  wishes,  to  counterbalance  two  of  the  silver  coins  we 
have  to  put  into  the  other  scale  3 1  of  the  gold  coins.  That  proves 
to  us  that  the  experiment  has  been  successfully  performed ;  for 
at  that  date  the  kilogramme  of  gold  was  worth  just  15^  times  as 
much  as  the  kilogramme  of  silver  (3100  francs  for  the  gold  as 
against  200  francs  for  the  silver  kilogramme) .  Let  us  bear  in  mind 
that  ratio  of  15.5  ;  it  is  the  legal  ratio  between  the  values  of  the  two 
metals,  and  is  as  celebrated  in  political  economy  as  tt  =  3.1416 
is  in  geometry.  So  far  everything  has  gone  beautifully,  but  let  us 
wait  for  the  end. 

In  1847  were  discovered  the  Californian  gold-fields;  in  1851, 
the  Australian.  The  annual  output  of  gold  is  therefore  multiplied 
by  500,000,000  or  600,000,000  francs  a  year  instead  of  about 
100,000,000.  On  the  other  hand,  silver  becomes  scarce  in  conse- 
quence of  the  development  of  trade  in  India  which  absorbs  large 
quantities  of  it.  The  result  is  that  the  respective  value  of  the  two 
metals  alters ;  in  the  market  for  precious  metals,  to  obtain  one 
kilogramme  of  gold,  it  is  not  necessary  to  give,  as  heretofore,  15I- 
kilogrammes  of  silver;  15  are  enough,  or  even  14!^;  in  other 
words,  gold  has  lost  more  than  6  per  cent  of  its  value.  Hence- 
forward it  is  clear  that  these  little  ingots  of  gold  which  constitute 
the  gold  coins  have  undergone  proportional  depreciation;  the 
five-franc  gold  piece  is  really  worth  only  4  francs  70  centimes. 

What  should  be  done  to  restore  the  equilibrium  ?  Evidently  the 
addition  of  a  little  more  gold  to  each  gold  coin,  about  6  per  cent 
more ;  to  restore  the  equivalence  between  the  intrinsic  value  and 
the  legal  value,  it  is  necessary  that  the  silver  five-franc  piece  should 


PRODUCTION.  20I 

counterbalance  1 5  or  14^^  gold  five-franc  pieces.  But  then  the  whole 
of  the  gold  coinage  will  have  to  be  restruck  ?     Let  us  wait  a  little. 

Twenty  years  later,  about  1873,  there  is  another  change.  The 
silver  mines  discovered  in  the  Western  American  States  throw 
upon  the  market  enormous  quantities  of  silver ;  at  the  same  time 
Germany  adopts  the  gold  standard,  demonetizes  her  silver  money 
and  casts  upon  the  market  her  thalers  which  she  no  longer  wants. 
Once  more  the  respective  value  of  the  two  metals  alters,  but  this 
time  in  the  opposite  direction.  In  the  market  for  precious  metals, 
for  one  kilogramme  of  gold  one  can  get  no  longer  merely  le^^  kilo- 
grammes of  silver,  but  16,  17,  18,  20,  even  as  many  as  22.  In 
other  words,  silver  has  lost  more  than  a  quarter  of  its  value  rela- 
tively to  gold.  Henceforward  it  is  clear  that  every  ingot  of  silver 
which  constitutes  a  silver  coin,  has  undergone  a  proportional  depre- 
ciation ;  the  five-franc  silver  piece  is  really  worth  only  3  francs 
50  centimes.  What  should  be  done  to  restore  the  equilibrium? 
Evidently  to  put  far  more  silver  into  each  silver  coin,  to  increase 
their  weight  by  a  quarter,  to  make  the  silver  five-franc  piece  weigh 
as  much  as  20  or  22  gold  five-franc  pieces;  then  the  equivalence 
would  be  restored  between  the  intrinsic  and  the  legal  value.  But 
then  the  whole  of  the  silver  coinage  will  have  to  be  restruck. 

We  ask  ourselves  in  amazement,  if  we  wish  to  preserve  for  both 
of  our  moneys  the  characteristics  of  right  naoney,  i.e.  the  rigorous 
equivalence  between  their  intrinsic  and  their  legal  value,  must  we 
be  incessantly  recoining  first  one  and  then  the  other,  in  order  to 
fit  their  weights  to  the  variations  in  value  of  the  two  metals? 
That,  it  seems,  is  the  inevitable  conclusion.  But  it  is  impracti- 
cable and  absurd  ! 

A  little  reflection  will  show  that  it  would  be  enough,  if  neces- 
sary, to  alter  the  weight  of  ofie  only  of  the  two  moneys,  and  take 
the  other  (always  the  same  one)  as  the  unit ;  for  example,  to  take 
as  unit  the  five-gramme  silver  franc,  and  alter  the  weights  of  the 
gold  coins,  sometimes  above,  sometimes  below  the  legal  weight, 
according  to  the  variations  in  value  of  the  metal  gold.  But  in  spite 
of  this  simplification,  the  process  would  scarcely  be  practicable. 


202  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Similarly,  wc  might  leave  invariable  the  weight  of  the  gold  coins, 
efface  the  indication  of  legal  value  which  is  figured  on  their  sur- 
faces, and  allow  their  value  to  oscillate  freely  according  to  the  laws 
of  supply  and  demand,  just  as  in  some  countries,  for  example  in 
Cochin  China,  there  are  variations  in  the  value  of  the  piastre.  But 
then  the  gold  pieces  are  no  longer  real  pieces  of  money ;  they  are 
nothing  more  than  ingots  which  circulate  like  any  other  commod- 
ity. There  will  then  be  a  quoted  price  for  twenty-franc  pieces, 
just  as  for  cotton  or  for  corn,  and  it  will  vary  in  the  same  manner. 
What  a  complication  to  introduce  into  business  matters  !  what 
snares,  especially  for  the  unwary,  to  fall  into  ! 

The  legislators  of  Germinal,  An  XI,  when  organizing  the  French 
monetary  system,  saw  perfectly  well  the  difficulties  that  might 
arise,  and  even  proposed  both  of  the  remedies  which  we  have 
just  mentioned.^ 

II.     How  it  is  that  Bimetallist  Countries  really  have  but 
One  Money. 

As  we  have  just  seen,  every  bimetallist  system  presents  the 
serious  disadvantage  of  not  being  able  to  maintain,  for  both 
moneys  at  once,  that  equivalence  between  intrinsic  and  legal 
value  which  should  be^the  characteristic  of  all  good  money.  In- 
cessantly, according  to  the  variations  in  value  of  the  two  metals, 
one  of  them  will  become  too  heavy  or  too  light. 

It  might  be  thought,  perhaps,  that  this  disadvantage  is  theoretical 
rather  than  practical.  What  does  it  matter,  one  might  say,  whether 
our  gold  or  our  silver  coins  have  a  legal  value  a  little  above  or 
below  their  real  value  ?  No  one  notices  it,  and  in  any  case  no 
one  suffers  from  it. 

That  is  a  mistake ;  in  such  a  situation  there  is  a  practical  disad- 

^  For  the  arguments  on  the  other  side,  see  the  Proceedings  of  the  Bimetal- 
lic Conference  (keld  in  Manchester,  April,  1888,  and  in  London,  December 
of  the  same  year),  and  especially  the  speech  of  Professor  Foxwell  at  the  April 
meeting.  —  J.  15. 


PRODUCTION.  203 

vantage,  and  more  than  that,  a  real  peril.  It  is  this  :  the  hghter 
money  of  the  two  will  gradually  drive  the  heavier  out  of  circula- 
tion, so  that  every  country,  which  is  nominally  under  the  double- 
standard  system,  as  a  matter  of  fact  falls  into  the  singular  position 
of  never  being  able  to  keep  m  circulation  7nore  than  one  of  its  two 
moneys,  and  that  money  is  the  worse  one.  A  periodical  movement 
of  flux  and  reflux  carries  away  the  metal  which  is  high  in  value, 
and  brings  back  that  which  is  low.  This  is  nothing  but  the  pure 
and  simple  application  of  Gresham's  Law,  which  we  have  just 
studied,  but  the  history  of  the  French  monetary  system  for  the 
past  forty  years  is  a  wonderful  proof  of  it. 

When  under  the  Second  Empire  gold  became  low  in  value  in 
consequence  of  the  circumstances  mentioned  in  the  previous 
chapter,  the  French  silver  money  began  to  disappear  and  to  be  re- 
placed by  gold  coins,  —  by  those  beautiful  Napoleons.  This  money 
people  were  not  much  accustomed  to  at  that  time ;  it  was  greatly 
admired,  and  in  it  courtiers  hailed  the  wealth  and  the  glory  of  the 
new  reign ;  in  reality  it  was  only  so  abundant  because  it  was  made 
of  depreciated  metal.  This  phenomenon  of  the  transmutation  of 
metals  is  ver}'  easily  explained. 

The  London  banker  who  wished  to  obtain  silver  to  send  to 
India  naturally  tried  to  buy  at  the  place  where  it  could  be  got  the 
cheapest.  In  London,  for  a  kilogramme  of  gold  he  would  not 
have  been  able  to  obtain  more  than  14  kilogrammes  of  silver. 
But  by  sending  his  kilogramme  of  gold  over  to  the  Paris  Mint, 
he  could  have  struck  3100  gold  francs,  and  then  exchanged  these 
3100  gold  francs  for  3100  silver  francs,  which  weigh  exactly 
3100  X  5  grammes,  i.e.  15^  kilogrammes.  Thus  for  his  kilo- 
gramme of  gold  he  had  succeeded,  in  fine,  in  obtaining  15!  kilo- 
grammes of  silver.  The  operation  could  also  be  performed  in  the 
reverse  manner.  A  Paris  banker  put  together  2800  silver  one-franc 
pieces  weighing  exactly  14  kilogrammes  (2800  x  0.005  =  i4)*  He 
sent  these  14  kilogrammes  of  silver  to  London,  and  obtained  in  ex- 
change I  kilogramme- of  gold,  since  that  was  the  market  value  of 
these  two  metals.     He  then  had  his  kilogramme  of  gold  sent  back 


204  PRINCIPLES    OF    POLITICAL    ECONOMY. 

from  London  and  had  it  coined  at  the  Paris  Mint  into  3100  gold 
francs.  Thus  his  gross  gain  on  the  transaction  was  300  francs,  or 
rather  more  than  10  per  cent,  and  even  when  the  cost  of  coinage 
and  of  transport  had  been  deducted,  the  transaction  was  still 
extremely  profitable.  It  is  easy  to  see  that,  thanks  to  this  trade, 
a  certain  quantity  of  silver  money  left  France,  and  was  replaced 
by  an  equal  quantity  of  gold  money.  That  is  the  very  way  in 
which  Gresham's  Law  works ;  heavy  money  is  replaced  by  light 
money.  Silver  coins  were  exported  from  France  to  India  by 
whole  ship-loads.  They  were  bought  for  their  weight  in  silver,  to 
be  sold  to  the  Bombay  and  Madras  Mints,  and  there  converted 
into  rupees.  During  this  period  those  Indian  Mints  turned  into 
rupees  more  than  two  thousand  million  French  silver  pieces. 

It  was  not  long  before  there  was  a  veritable  dearth  of  silver 
money.  In  the  old  days  prohibitive  measures  would  have  been 
speedily  resorted  to,  to  prevent  the  escape  of  this  silver  money, 
and  penalties  would  perhaps  have  been  inflicted  on  exporters. 
Economic  science,  by  pointing  out  the  cause  of  the  evil,  was 
enabled  to  offer  a  more  efficacious  remedy.  Silver  money  was 
disappearing;  why?  because  it  was  too  heavy;  it  was  enough, 
then,  to  lighten  it  by  diminishing  its  weight  or  merely  the  pro- 
portion of  fine  metal,  and  men  could  be  certain  that  its  wings 
had  been  clipped ;  it  would  not  stir  henceforward.  This  was 
effected  by  mutual  agreement  between  France,  Italy,  Belgium, 
and  Switzerland  by  the  convention  of  December  23,  1865.  The 
standard  of  all  silver  coins,  save  five-franc  pieces,  was  lowered 
from  900  parts  out  of  1000  to  835  parts  out  of  1000,  a  diminution 
in  their  value  of  rather  more  than  7  per  cent.  All  those  coins 
became  then,  and  have  since  remained  token  money,  and  accord- 
ing to  the  invariable  principles  that  obtain  in  this  matter  have 
since  that  date  lost  their  character  of  legal  money,  and  are  only 
received  as  small  money,  up  to  the  sum  of  50  francs  between  pri- 
vate persons,  but  to  any  amount  in  public  offices.  Why  was  an 
exception  made  in  the  case  of  the  five-franc  piece  ?  There  was 
no  sound  reason  for  this,  but  it  was  France  that  insisted  on  the 


PRODUCTION.  205 

concession.  To  turn  all  silver  coins  into  token  money  would  have 
been  to  entirely  abandon  silver  money  as  legal  tender ;  it  would 
have  been  a  clear  adoption  of  the  gold  monometallist  system,  as 
in  England,  and  such  a  revolution  in  their  monetary  system  terri- 
fied the  French  government.  The  five-franc  piece  was  therefore 
kept  with  its  former  weight  and  fineness  and  character  of  legal 
money.  Naturally  it  continued  to  escape,  but  it  could  be  more 
easily  dispensed  with  than  the  smaller  change  ;  if  need  be,  it  could 
be  replaced  by  the  gold  five-franc  piece. 

From  1870  onwards,  we  have  seen  that  a  reverse  revolution  was 
effected  in  the  respective  values  of  the  two  metals,  and  that  the 
French  monetary  system  was  once  more  thrown  out  of  order,  but 
this  time  in  the  opposite  direction.  It  was  the  gold  money  which 
became  too  heavy,  and  consequently  began  to  emigrate  ;  the  silver 
became  too  light  and  began  to  swarm.  The  operations  just  ex- 
plained were  renewed,  but  the  other  way  about. 

A  banker  in  Paris  procures  3100  francs  in  gold,  either  in  twenty- 
franc  or  in  ten-franc  pieces,  it  matters  not  which.  That  comes  to 
exactly  a  kilogramme  of  gold.  These  the  banker  puts  into  a  bag, 
and  sends  them  off  to  London.  In  the  London  market  for  pre- 
cious metals,  for  one  kilogramme  of  gold  20  kilogrammes  of  silver 
can  now  be  obtained.  The  banker,  therefore,  buys  20  kilo- 
grammes of  silver,  sends  them  back  to  Paris,  and  has  them  turned 
into  coin  at  the  Mint.  Since  the  Mint  must  strike  from  one  kilo- 
gramme of  silver  either  200  one-franc  pieces  or  40  five-franc 
pieces,  our  banker  receives  20  x  200  =  4000  francs  in  five-franc 
pieces,  —  a  gross  profit  of  900  francs.  Deduct  the  cost  of  car- 
riage and  of  coining,  and  also  the  premium  necessary  for  obtain- 
ing gold  pieces  if  they  have  become  scarce,  and  none  the  less  the 
transaction  will  be  exceedingly  lucrative.  It  is  clear  that  for 
France  the  effect  of  the  operation  is  this  :  There  is  a  decrease  in 
gold  money  and  an  increase  in  silver  money.  Were  it  repeated 
indefinitely,  the  result  of  this  simple  operation  after  a  certain 
lapse  of  time  would  be  to  entirely  substitute  in  the  circulation  sil- 
ver money  for  gold  money. 


206  PRINCIPLES    OF    POLITICAL    ECONOMY. 

It  was  necessary  then  that  the  Powers  who  had  formed  the 
Latin  Union  (Greece  having  also  joined  it)  should  set  to  work  to 
remedy  this  new  danger.  Just  as  in  1865  they  had  stopped  the 
flight  of  silver  money  by  lowering  its  standard,  so  too  they  would 
have  been  able  to  prevent  the  departure  of  gold  money  by  lower- 
ing its  standard  or  diminishing  its  weight.  But  these  constant 
recoinings,  first  of  one  money,  then  of  another,  would  have  ended 
in  the  disorganization  of  the  whole  monetary  system.  It  was 
thought  advisable  to  resort  to  a  more  simple  plan.  The  conven- 
tion of  November  5,  1878,  completely  suspended  the  striking  of 
five-franc  pieces.  Henceforward  the  transaction  just  described 
became  impossible  ;  there  was  no  longer  any  profit  in  buying  silver 
ingots  abroad,  for  they  could  no  longer  be  coined  into  money  in 
France. 

This  measure,  too,  fully  succeeded  in  preserving  for  France  her 
fine  stock  of  metallic  gold,  which  had  not  yet  been  sensibly  drawn 
upon.  But,  as  can  easily  be  believed,  this  convention,  which 
closed  to  the  metal,  silver,  a  market  of  nearly  eighty  millions  of 
men,  and  thus  remarkably  restricted  its  sale,  had  the  effect  of  has- 
tening still  more  the  depreciation  of  the  metal  silver;  in  other 
words,  of  aggravating  the  evil.  Then  the  metal  silver,  which  till 
that  time  had  not  lost  more  than  10  or  12  per  cent  of  its  value, 
was  seen  to  fall,  flight  by  flight,  down  to  the  price  at  which  it  was 
in  August,  1886,  of  140  francs  per  kilogramme,  instead  of  its  legal 
price  of  200  francs  (corresponding  to  a  ratio  of  i  to  22^  between 
the  values  of  the  two  metals) . 

Since  then  there  has  been  a  sensible  rise,  and  now  (July,  1890) 
the  price  is  1 70  francs  per  kilogramme,  or  a  ratio  of  i  to  1 8^. 
But  this  rise  seems  to  be  partly  factitious  and  due  to  speculation. 
Even  now  the  coining  of  silver  money  has  not  been  resumed,  and 
no  one  can  say  if  it  ever  will  be.  Henceforward  we  can  say  that 
though  the  countries  of  the  Latin  Union  are  still  legally  under  the 
bimetallist  system,  they  have  in  reality  almost  become  gold  mono- 
metallists.  Of  all  their  silver  coins,  there  is  but  one  which  is  legal 
money,  and  that  is  the  very  one  which  is  no  longer  struck  / 


PRODUCTION.  207 

III.     Whether  it  is  Advisable  to  adopt  the  Monometallist 

System. 

After  the  foregoing  explanation  there  seem  to  be  no  grounds 
for  hesitation.  The  monometallist  system  is  infinitely  more  simple 
than  the  bimetalHst.  It  cuts  short  all  the  difficulties  we  have  just 
pointed  out.     Why  hesitate,  then  ? 

That  is  the  very  line  of  argument  that  is  taken  up  by  nearly  the 
whole  Classical  school  of  economists ;  for  them  monometalUsm  is 
almost  like  free  trade,  an  article  of  faith. 

Besides,  it  is  the  system  which  has  long  been  adopted  by  the 
first  commercial  nation  in  the  world,  England  (since  1816),  and 
several  other  countries  have  followed  in  her  footsteps,  to  wit,  Por- 
tugal, Germany  (in  1873),  ^^^  three  Scandinavian  states  (in  1875). 
Nevertheless,  the  bimetallist  countries  —  first  of  all,  the  group  of 
the  Latin  Union,  comprising  France,  Italy,  Belgium,  Switzerland, 
and  Greece ;  then  other  European  states  which  adhere  to  the 
same  regime,  Holland,  Spain,  Roumania,  Servia,  etc.  (Russia  and 
Austria  are  also  reckoned  among  the  bimetallist  nations,  but  in 
fact  they  have  scarcely  any  metallic  money  and  are  under  the 
paper  money  system),  and  finally  the  United  States  of  America  — 
have  never  yet  consented  to  abandon  their  system,  nor  do  they 
seem  inclined  to  do  so.  On  the  contrary,  in  the  frequent  Con- 
gresses which  have  met  of  late  years,  they  have  attempted,  though 
without  success,  to  bring  back  to  the  bimetallist  system  the  States 
which  have  abandoned  it.  It  should  be  noted  that  the  United 
States  have  not  taken  the  same  ratio  between  the  values  of  the  two 
metals  as  has  been  adopted  by  the  Latin  Union ;  between  the 
gold  dollar  and  the  silver  dollar  the  ratio  is  i  to  16.  The  United 
States  would  long  since  have  become  monometaUist,  like  England, 
were  it  not  for  the  necessity  of  keeping  a  market  open  for  their 
rich  silver  mines.  But,  as  a  matter  of  fact,  their  silver  dollars 
scarcely  circulate  at  all.  For  that  reason,  in  accordance  with  the 
Bland  Act,  which  has  made  much  stir,  they  still  coin  2,000,000  of 
dollAs  a  month,  and  now,  in  consequence  of  the  passage  of  the 


208  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Silver  Bill,  4,500,000  ounces  are  to  be  bought  monthly  at  market 
prices,  and  2,000,000  of  these  are  to  be  coined  into  silver  dollars 
until  July,  1891.  The  reason  for  all  this  hesitation  is,  that  the 
adoption  of  the  monometallist  system  is  not  without  disadvantages, 
nay,  even  dangers,  both  for  the  present  and  in  the  future. 

Firstly.  The  first  disadvantage  is  that  the  adoption  of  the  gold 
standard  involves  the  demonetization  of  silver  ;  for  if  the  five-franc 
piece  is  deprived  of  its  character  of  legal  money,  it  must  also  be 
withdrawn  from  circulation.  Now  there  are  in  France,  roughly 
speaking,  three  thousand  millions  of  these  coins,  but  if  sold  for 
their  weight  in  silver  they  would  hardly  be  worth  more  than  two 
thousand  millions.  The  cost  of  this  step,  then,  would  amount  to 
about  one  thousand  millions,  and  perhaps  more,  for  it  is  perfectly 
evident  that  such  a  measure  would  inevitably  hasten  a  further  fall 
in  the  value  of  the  metal  silver. 

Perhaps  it  will  be  said  that  the  State  would  have  nothing  to  do 
but  to  allow  the  loss  to  fall  on  the  holders  of  five-franc  pieces.  In 
the  first  place,  that  would  scarcely  be  an  honorable  proceeding  for 
the  State,  which  has  guaranteed  the  value  of  these  pieces  by  stamp- 
ing that  value  on  the  coin  itself;  and  in  any  case  it  would  ruin 
the  Bank  of  France,  which  has  in  its  cash  reserve  more  than 
1,200,000,000  francs  in  silver;  on  these  it  would  lose  at  least 
400,000,000,  or  more  than  double  its  capital ! 

When,  in  1873,  Germany  wished  to  demonetize  her  silver  money, 
she  was  obliged  to  desist  from  carrying  out  the  transaction  in  its 
entirety  because  the  cost  was  too  great ;  yet  the  fall  in  silver  then 
was  far  from  being  what  it  has  since  become. 

Secondly.  A  second  disadvantage  is,  that  if  all  countries  took 
gold  as  their  standard,  there  is  reason  to  fear  that  the  supply  of  the 
metal  would  no  longer  be  sufiicient  for  all  requirements.  The  pro- 
duction of  gold  is  already  beginning  to  diminish.  The  quantity 
annually  produced  in  the  mines,  which  fifteen  years  ago  was  more 
than  600,000,000  francs,  has  fallen  to  about  500,000,000 ;  and 
then  it  must  not  be  forgotten  that  at  least  half  of  this  product  is 
absorbed  for  industrial  uses.     It  is  possible,  however,  that  the 


PRODUCTION.  209 

working  of  the  recently  discovered  mines  in  the  Transvaal  may 
largely  swell  the  production  of  gold. 

Still  (from  the  bimetallist  point  of  view)  there  is  reason  to 
fear  that  gold,  becoming  at  the  same  time  scarcer  and  more 
sought  for,  will  greatly  rise  in  value.  What  does  that  matter?  some 
may  say ;  the  only  consequence  is  that  with  a  twenty-franc  gold 
piece  a  man  will  be  able  to  obtain  twice  the  quantity  of  goods  he 
formerly  could.  What  is  the  harm  of  that  ?  The  harm  Ues  pre- 
cisely in  the  general  fall  in  prices  which  is  presupposed  by  such  an 
hypothesis.  It  is  already  the  opinion  of  many  economists  that  the 
crisis  which  all  producers  have  complained  of  for  several  years 
past  has  no  other  cause  than  the  appreciation  of  gold,  as  it  is 
called,  i.e.  its  rise  in  value  occasioned  by  its  scarcity ;  their  con- 
clusion is  that  the  general  adoption  of  the  monometalUst  system 
would  seriously  aggravate  this  scarcity,  and  consequently  heighten 
the  crisis  itself. 

To  this  the  partisans  of  monometallism  reply  that  the  improve- 
ment in  means  of  credit,  which  enables  men  to  more  and  more 
easily  dispense  with  metallic  money,  more  than  compensates  for 
this  diminution,  and  the  answer  appears  to  be  well  founded  (see 
"Paper  Money"). 

Thirdly.  Finally,  the  third  disadvantage  is,  that  variations  in 
price  are  far  more  to  be  feared  with  a  single  standard  of  values 
than  with  two. 

When  there  is  but  a  single  money  for  the  measurement  of 
values,  the  consequence  of  every  variation  in  the  value  of  this 
money  is  an  inverse  variation  in  prices,  and  these  variations,  if  at 
all  frequent  or  sharp,  throw  out  of  working  the  whole  commercial 
organization,  and  provoke  the  crisis. 

When,  on  the  other  hand,  two  moneys  are  employed  for  the 
measurement  of  values,  a  kind  of  compensation  is  set  up  between 
the  two  which  is  very  favorable  to  the  stability  of  prices,  and  there- 
fore to  the  prosperity  of  trade  ;  for  in  business  stability  is  always 
of  the  highest  consideration.  The  explanation  of  this  phenomenon 
of  compensation  is  rather  subtle,  but  it  is  not  difficult  to  grasp  its 
main  idea. 


210  PRINCIPLES    OF    POLITICAL    ECONOMY, 

It  is  enough  to  recollect  that  the  principal  cause  of  the  superi- 
ority of  the  precious  metals  as  the  measure  of  values  arises  from 
the  fact  that  their  variations  in  quantity  are  a  small  matter  when 
taken  relatively  with  the  existing  mass.  But  this  condition  is  the 
better  fulfilled,  the  larger  the  amount  of  the  stock  of  metal,  and 
the  more  varied  the  sources  which  supply  it.  When  it  is  com- 
posed of  two  metals,  it  will,  to  begin  with,  form  a  double  mass, 
and  further,  as  it  is  hardly  probable  that  the  causes  which  bring 
about  a  glut  of  production  of  one  or  other  of  the  two  metals 
will  coincide  in  the  case  of  both,  the  variations  will  be  less  felt. 
Similarly,  the  rises  in  level  of  a  river  are  less  sudden  and  less  to  be 
feared,  the  more  numerous  its  tributaries  are,  and  the  more  distant 
and  the  more  varied  in  geological  and  climatic  features  the  dis- 
tricts in  which  they  take  their  rise.  From  this  point  of  view  it  is 
better  that  our  reservoir  of  metals  should  be  fed  by  two  tributaries, 
gold  and  silver,  rather  than  by  one  only,  and  were  there  three  or 
four,  that  would  be  better  still.  Indeed,  had  there  been  but  the 
metal  gold,  the  discovery  of  the  Californian  and  Australian  gold 
fields  would  have  caused  the  utmost  perturbation  through  an 
excessive  rise  in  prices.  Their  exhaustion  would  cause  a  still  more 
formidable  shock.  It  does  not  greatly  matter  whether  prices  be 
high  or  low ;  the  point  of  cardinal  importance  is  that  low  prices 
shall  not  abruptly  follow  on  high  prices,  or  vice  versa. 

We  can  now  very  easily  understand  why  the  bimetallist  countries 
hesitate  to  adopt  monometallism  ;  however  weak  be  the  thread 
which  still  binds  them  to  bimetallism,  the  cutting  of  it  may  cost 
them  dear.  For  the  moment  they  feel  sufficiently  protected  by 
the  law  which  prohibits  the  coinage  of  silver  money  —  in  fact, 
since  that  law  came  into  operation,  the  quantity  of  gold  in  France 
has  not  been  observed  to  diminish  in  disquieting  proportions  — ' 
and  postpone  their  decision  till  a  more  favorable  occasion ;  for 
example,  the  time  when  the  opening  up  of  China  or  of  Central 
Africa  to  European  trade  will  result  in  heightening  once  more  the 
value  of  the  metal  silver.  Indeed,  this  status  quo  pohcy  appears 
to  be  the  wisest.     There  is  no  great  evil,  nay,  there  is  even  some 


PRODUCTION,  211 

good,  in  the  circumstance  that  the  world  comprises  at  one  and  the 
same  time,  gold  monometallist  countries,^  silver  monometallist 
countries  (such  as  China  and  India),  and  bimetallist  countries 
which  serve  as  connecting  links  between  the  two.  No  doubt  the 
bimetallists  are  in  a  somewhat  difficult  position ;  they  have  always 
to  defend  the  one  of  their  two  moneys  which  happens  to  be  appre- 
ciated, but  they  can  succeed  in  this  to  a  certain  degree ;  further, 
even  if  they  should  be  obliged  to  send  abroad  part  of  the  appre- 
ciated money,  as  they  would  not  do  this  for  nothing,  and  would 
make  the  receivers  pay  a  premium  on  it,  in  the  long  run  the 
matter  would  be  a  business  transaction  just  like  any  other  opera- 
tion, and  no  great  harm  would  result. 

IV.    Whether  the  Respective  Value  of  the  Two  Metals 
could  not  be  fixed  by  an  International  Understanding. 

The  partisans  of  bimetallism  go  even  further ;  they  assert  that 
none  of  the  difficulties,  which  appear  to  be  inherent  in  the  bi- 
metallist system  would  be  produced,  were  that  system  sanctioned 
by  an  international  agreement  between  all  civilized  peoples,  on  the 
basis  of  the  i5|-  ratio  or  some  other  ratio. 

It  is  this  assertion  that  particularly  outrages  the  feelings  of 
economists  of  the  Classical  school.  It  would  be  impossible,  say 
they,  for  the  will  of  one  government,  or  even  of  all  governments 
together,  to  fix  the  respective  values  of  gold  and  of  silver  ne  vari- 
entuvy  any  more  than  the  respective  values  of  oxen  and  sheep,  or 
of  corn  and  hay.  The  value  of  articles  is  solely  determined  by 
the  law  of  supply  and  demand,  and  is  altogether  beyond  the  scope 
of  legislative  regulation ;  the  value  of  the  precious  metals  is  no 
exception  to  the  rule. 

In  our  opinion,  this  line  of  argument  of  the  Classical  school  is  a 
little  too  unqualified.  Gold  and  silver  are  not  commodities  which 
can  be  likened  to  oxen  or  sheep,  or  any  other  article,  for  the 
reason  that  their  principal  utility  is  to  serve  for  the  fabrication 
of  money.     When,  therefore,  we  speak  of  the   demand  for  the 


212  PRINCIPLES    OF    POLITICAL    ECONOMY. 

precious  iiletals,  we  must  understand  by  that  almost  exclusively 
the  demand  made  by  a  dozen  governments  for  their  Mints.  Now 
there  is  nothing  absurd  in  thinking  that  if  these  dozen  buyers 
agreed  among  themselves  to  fix  the  respective  prices  of  the  two 
metals,  they  could  not  succeed  in  so  doing.  If  they  announce 
that  they  will  all  buy  the  kilogramme  of  gold  at  the  rate  of  3100 
francs,  and  the  kilogramme  of  silver  at  the  rate  of  200  francs,  it  is 
highly  probable  that  they  will  give  the  law  to  the  market.  The 
Classical  school  say  that  it  would  be  absurd  to  decree  that  an  ox 
shall  always  be  worth  ten  sheep,  or  a  bushel  of  corn  two  bushels  of 
hay.  Certainly;  for  the  market  for  those  commodities  is  un- 
bounded, and  each  man  of  us,  by  his  personal  tastes,  shares  in 
regulating  current  prices  therein.  But  if  in  the  whole  world  there 
were  only  a  dozen  people  who  consumed  beef  or  mutton,  it  is 
highly  probable  that,  by  concerting  together,  they  might  succeed 
in  fixing  the  relative  prices  of  oxen  and  sheep  on  the  basis  of  i  to 
10,  or  on  any  other  scale  they  might  think  fit.  This  occurs  fre- 
quently enough  in  commercial  speculations  in  the  shape  of  com- 
binations between  large  dealers. 

No  doubt,  this  conclusion  must  not  be  pushed  so  as  to  become 
absurd.  It  is  evident  that  it  would  never  be  within  the  power  of 
governments,  even  were  they  unanimous,  to  decree  that  the  ratio 
between  gold  and  silver  shall  henceforth  be  equality,  or  further, 
that  it  shall  be  reversed,  and  the  kilogramme  of  silver  be  worth 
155^  kilogrammes  of  gold.  Why  would  such  a  decree  be  a  dead 
letter?  Because  the  industrial  use  of  the  precious  metals,  though 
of  less  importance  than  their  use  as  money,  should,  nevertheless, 
not  be  neglected,  and  would  suffice  to  prevent  the  fixing  of  so 
extravagant  a  ratio  as  that  just  instanced.  All  the  governments 
in  the  world  would  decree  in  vain  that  silver  shall  be  worth  as 
much  as  gold ;  men  and  women  will  never  pay  the  same  price  for 
a  silver  watch  or  ring  as  for  a  gold  one.  The  price  of  gold  would 
always  remain  far  higher  than  that  of  silver  in  the  market  for  pre- 
cious metals,  and  would  therefore  be  much  above  its  legal  value. 
Thence  would  result  the  consequences  of  Gresham's  Law,  which 
are  now  so  familiar  to  us. 


PRODUCTION.  213 

Let  us  add  that  if,  on  the  hypothesis,  the  value  of  gold  were 
successfully  maintained  at  the  same  level  as  that  of  silver,  since 
the  cost  of  production  of  gold  is  far  higher  than  that  of  silver,  the 
gold  mines  would  soon  be  abandoned,  on  account  of  no  longer 
giving  any  profit,  and  such  a  measure  would  finally  result  in  the 
stoppage  of  all  production  of  gold  after  a  shorter  or  longer  lapse 
of  time.  Similarly,  if  an  ox  were  deemed  to  be  worth  no  more 
than  a  sheep,  and  that  basis  of  valuation  were  successfully  imposed, 
we  may  take  it  as  sure  that  no  one  would  continue  to  breed  oxen, 
and  that  after  a  certain  time  the  very  race  of  oxen  would  have 
disappeared. 

But  within  reasonable  limits,  we  do  not  hesitate  in  believing 
that  an  international  agreement  would  be  efficacious  in  fixing  the 
respective  values  of  the  two  metals,  and  consequently  in  doing 
away  with  the  chief  disadvantage  of  bimetalHsm,  the  disappear- 
ance of  one  of  the  two  moneys.  For  whither  would  it  go,  seeing 
that  in  every  country  it  would  be  subjected  to  the  same  law  ?  If 
at  present  gold  tends  to  escape  from  France  to  England,  that  is 
because  gold  is  worth  more  in  England  than  in  France  ;  in  France 
it  is  worth  only  15^  kilogrammes  of  silver,  in  England  it  is  worth 
18  or  20 ;  but,  if  in  England,  too,  its  worth  was  fixed  by  law  to  be 
no  more  than  15^  kilogrammes  of  silver,  where  would  the  ex- 
porter's profit  come  in  ?  If  in  France  an  ox  could  not  be  sold  for 
more  than  one  sheep,  all  oxen  would  assuredly  be  sold  abroad ; 
but  if  abroad,  too,  they  were  treated  exactly  on  the  same  footing, 
they  would  remain  where  they  were. 


CHAPTER  V. 


PAPER  MONEY. 


I.     Whether  Metallic  Money  can  be  replaced  by  Paper 

Money. 

Were  we  not  already  aware  that  paper  money  can  be  substituted 
for  metallic  money,  we  might  have  some  difficulty  in  believing  it  to 
be  possible,  and  the  title  of  this  chapter  might  excite  our  wonder. 

It  is  obviously  impossible  to  replace  corn  or  coal  or  wealth  of 
any  other  sort  by  mere  pieces  of  paper,  on  which  are  engraved  the 
words,  "  so  many  bushels  of  corn"  or  "so  many  hundredweights 
of  coal."     From  such  paper  we  cannot  obtain  food  or  warmth. 

Were  we  to  use  coins  to  hang  round  our  necks,  just  as  Eastern 
women  wear  their  gold  or  silver  sequins,  once  again  our  scraps  of 
paper  would  be  useless.  But  money  is  not  like  other  wealth; 
there  is  no  material  element  in  its  utility.  A  piece  of  money,  a 
coin,  is  in  fine  nothing  but  an  "  order,"  which  entitles  us  to  claim 
by  means  of  exchange  a  certain  portion  of  existing  wealth,  or  to 
pay  our  debts.  That  part  can  be  played  by  a  piece  of  paper  just 
as  well  as  by  a  fragment  of  metal. 

The  matter  will  be  clearer  if  we  distinguish  between  three  kinds 
of  paper  money. 

Firstly.  Representative  paper  money  merely  represents  an 
equal  sum  of  coin,  which  is  deposited  somewhere,  say  in  the  cof- 
fers of  a  bank,  and  serves  as  a  security  for  it.  Thus,  as  the  people 
of  the  United  States  are  not  enamored  of  silver  dollars,  the  govern- 
ment of  that  country  keeps  these  dollars  in  its  coffers  and  store- 
rooms, and  replaces  them  in  circulation  by  silver  certificates  which, 
in  virtue  of  being  paper  money,  are  much  more  handy  to  use. 
This  first  form  of  paper  money  presents  no  difficulties. 
214 


PRODUCTION.  215 

Secondly.  Fiduciary  paper  money  takes  the  shape  of  a  credit 
paper,  or,  properly  speaking,  a  promise  to  pay  a  certain  sum  of 
money.  It  is  clear  that  the  value  of  the  document  depends 
entirely  upon  the  solvency  of  the  debtor ;  but,  if  perfect  trust  can 
be  placed  in  this  solvency,  and,  to  use  the  business  phrase,  the 
signature  is  worth  money,  there  is  no  reason  why  this  strip  of  paper 
should  not  circulate  as  easily  as  metallic  money.  We  shall  see 
that  bank  notes  usually  fall  under  this  head,  though  in  certain 
respects  and  according  to  circumstances  they  may  belong  to  the 
first  or  the  third  category. 

Thirdly.  Conventiojial  paper  money  represents  nothing  and 
gives  a  claim  to  nothing  ;  for  that  reason  the  term  "  paper  money  "  in 
the  strict  sense  of  the  word  is  usually  confined  to  this  kind,  which 
generally  consists  of  strips  of  paper  which  are  issued  by  a  State 
which  has  no  coin.  No  doubt  they  are  inscribed  with  the  words, 
";^5  note,  ^10  note,"  etc.,  and  thus,  like  the  preceding  forms, 
they  present  the  appearance  of  a  promise  to  pay  a  certain  sum  of 
money.  But  that  is  known  to  be  a  pure  fiction,  and  every  one  is 
aware  that  the  government  will  never  redeem  them,  for  it  has  no 
money  for  that  purpose. 

It  is  especially  in  this  third  form  that  the  substitution  of  paper 
money  for  metallic  money  seems  hard  to  understand,  nor  is  the 
matter  a  simple  one.  Yet  the  experiment  has  often  been  made  in 
all  countries,  and  has  proved  that  under  certain  conditions  the 
substitution  is  possible,  and  that  the  public  can  fall  in  with  the 
process  well  enough.  This  system  has  prevailed  in  Russia  and 
the  South  American  republics  for  several  generations,  and  why 
not,  indeed?  If — in  accordance  both  with  law  and  with  the  gen- 
eral consent,  which  must  always  ratify  to  a  certain  extent  the 'decla- 
ration of  the  lawgiver  —  these  white  or  blue  strips  of  paper  are 
invested  with  the  property  of  paying  for  our  purchases,  discharging 
our  debts,  and  settling  for  our  taxes,  why  should  they  not  circulate 
just  as  well  as  white  or  yellow  coins?  Coins  serve  us  no  other 
purpose  than  that. 

Yet  in  spite  of  this  circulating  faculty  of  paper  money,  we  must 


2l6  PRINCIPLES    OF    POLITICAL    ECONOMY. 

confess  that  between  its  value  and  that  of  metalUc  money  there 
will  always  be  several  important  differences.  The  value  of  paper 
money  will  always  be  more  precarious,  more  restricted,  and  more 
variable. 

Firstly.  The  value  of  paper  is  precarious,  for  it  rests  entirely 
on  the  will  of  the  legislator,  and  can  be  annihilated  by  the  very 
law  which  has  created  it.  If  the  law  demonetizes  paper  money^ 
the  holder  will  retain  in  his  possession  nothing  but  a  worthless 
rag,  for  when  it  has  lost  its  legal  value  it  has  lost  all.  The  same 
does  not  altogether  hold  good  of  metallic  money ;  for  besides  its 
legal  value  it  has  also  a  natural  value,  which  is  due  to  the  physical 
and  chemical  properties  of  the  metal  of  which  it  is  composed. 
No  doubt,  if  gold  and  silver  were  demonetized  in  every  country, 
metallic  money  would  lose  the  greatest  part  of  its  value.  We 
must  not  deceive  ourselves  as  to  this  matter ;  and  the  present  fall 
in  silver,  caused  by  its  demonetization  in  some  countries,  only  too 
fully  proves  the  fact.  Yet  many  authors  do  harbor  this .  illusion, 
or  at  any  rate  do  not  put  their  readers  on  their  guard  against  it. 
Most  of  them  seem  to  say  that  the  government  seal  stamped  upon 
gold  and  silver  coins  merely  states  their  actual  value,  just  as  the 
tickets  tradesmen  put  upon  their  goods.  But  the  declaration  that 
the  six-gramme  gold  piece  is  worth  twenty  francs  is  not  only 
declaratory,  but  is  also  determinative  of  value.  It  is  because  the 
will  of  the  legislator,  or,  if  it  is  preferred,  the  agreement  of  men, 
has  chosen  gold  and  silver  as  money,  that  these  metals  have 
acquired  the  larger  part  of  their  value ;  and  they  would  lose  it  as 
soon  as  this  agreement  or  this  law  happened  to  cease  to  exist. 
Aristotle,  too,  had  perceived  this  very  clearly.  Says  he  in  the 
Nicomachean  Ethics,  Book  V  :  "It  was  through  a  voluntary  agree- 
ment that  money  became  the  instrument  of  exchange.  It  is 
called  v6jxt(Tfxa  (from  vo/aos,  law),  because  money  is  not  a  natural 
product,  but  exists  only  through  law ;  and  it  lies  with  us  to  change 
it  and  rob  it  of  its  utility  as  we  will." 

Still  we  must  remark  that  there  was  nothing  arbitrary  in  men's 
choice  falUng  upon  the  precious  metals,  for  it  was  dictated  by 


PRODUCTION.  217. 

those  very  real  qualities  possessed  by  these  metals,  which  we  have 
already  described.  It  is  not  then  perfectly  logical  to  argue  on 
the  opposite  tack,  as  do  some  economists,  notably  M.  Cernuschi, 
and  to  say  that  the  value  of  the  precious  metals  is  purely  con- 
ventional. For  any  object  to  acquire  a  recognized  utility  and 
value,  in  every  case  man's  will  and  choice  must  intervene ;  but  if 
this  will  and  this  choice  are  determined  by  natural  causes,  the 
resulting  value  is  also  natural  and  by  no  means  conventional. 
Corn  itself  owes  its  value  to  the  fact  that  most  civilized  men  have 
^chosen  as  their  staple  food  this  cereal  out  of  many  others ;  and, 
if  ever  they  take  another  in  its  place,  we  may  affirm  that  its  value, 
too,  will  fall ;  but  no  one  will  dream  of  saying  that  the  value  of 
com  is  conventional.  It  is  the  same  with  the  precious  metals. 
The  only  difference  is  that  it  is  far  easier  to  replace  the  precious 
metals  as  money,  or  even  to  dispense  with  them,  than  it  is  to  do 
without  corn. 

Yet  even  on  the  hypothesis  that  demonetization  would  cause 
them  to  lose  most  of  their  value,  the  precious  metals  would  still 
retain  some  utility,  for  the  non-oxidizability  of  the  precious  metals 
would  admirably  fit  them  for  some  industrial  uses,  to  which  they 
cannot  now  be  turned  because  of  the  excessive  cost ;  and  as  such 
uses  would  become  more  important  and  more  numerous  in  pro- 
portion to  the  fall  in  value  of  the  metal,  it  is  possible  that  this  fall 
in  value  would  not  be  so  great  as  is  believed.  Let  it  descend 
to  a  third  or  a  fourth  of  its  present  worth.  The  holder  of  coins 
would  still  possess  a  certain  value  that  law  could  not  deprive  him 
of,  —  probably  higher  than  that  of  any  other  commodity. 

Secondly.  The  value  of  paper  money  is  more  restricted,  for,  as 
it  is  conferred  by  law,  it  cannot  extend  beyond  the  limits  of  the 
territory  regulated  by  that  law.  Of  course  a  Bank  of  France  note 
can  be  accepted  abroad  by  a  money-changer,  or  by  any  one  who 
is  acquainted  with  the  Bank  of  France,  and  knows  the  worth  of 
its  signature.  But  in  that  case  the  note  is  received  not  as  money, 
but  as  a  bill  —  that  is  to  say,  with  the  intention  of  having  it 
cashed  — just  as  in  all  countries  notes  signed  by  Rothschild  would 


2l8  PRINCIPLES    OF    POLITICAL    ECONOMY. 

be  accepted.  Paper  money,  then,  cannot  serve  to  settle  definitely 
the  international  exchanges.  On  the  other  hand,  as  the  value  of 
metallic  money  is  regulated  by  the  metal,  it  is  almost  the  same  in 
all  civilized  countries  ;  it  can  therefore  circulate  every^vhere,  if  not 
as  coined  money,  at  least  as  bullion.  That  is  why  metallic  money 
is  essentially  a  universal  and  international  money,  whilst  paper 
money  is  essentially  national. 

Thirdly.  Finally,  the  value  of  paper  money  is  more  variable 
than  that  of  metallic  money,  and  this  for  the  most  excellent  reason 
that  the  quantity  of  paper  money  depends  only  on  the  will  of  the 
legislator,  whilst  that  of  metallic  money  rests  on  natural  causes  ; 
namely,  the  discovery  of  fresh  mines.  The  former,  therefore,  is 
issued  by  man,  the  latter  by  nature.  It  is  in  the  power  of  a  care- 
less legislator  to  depreciate  paper  money  by  issuing  too  large  a 
quantity  of  it,  and  that  power  is  too  often  exercised  ;  but  no 
government  on  earth  is  able  to  depreciate  metallic  money  in  such 
a  manner.  Even  if  only  a  fixed  quantity  of  paper  money  were 
issued,  the  disadvantage  would  subsist,  for  wants  vary  according 
to  circumstances.  If  a  period  of  commercial  activity,  which  re- 
quires an  increase  in  the  instrument  of  exchange,  is  succeeded,  as 
is  usually  the  case,  by  a  period  of  depression,  paper  money  will 
necessarily  be  found  to  be  in  excessive  quantity. 

It  is  true  that  the  discovery  of  exceptionally  rich  mines  may 
at  a  given  moment  throw  upon  the  world  a  large  quantity  of  the 
precious  metals  and  thus  effect  a  fall  in  the  value  of  metallic 
money.  It  is  also  true  that  when  a  period  of  depression  succeeds 
to  a  period  of  activity,  the  metallic  money  which  has  been  attracted 
into  a  country  may  prove  to  be  excessive  in  amount.  The  cir- 
cumstance has  occurred  more  than  once;  but  these  variations 
never  possess  the  magnitude  or  the  fatal  consequences  that  belong 
to  and  result  from  every  variation  in  the  quantity  of  paper  money, 
for  they  extend  over  the  whole  surface  of  the  civilized  world. 
Everywhere  in  request,  everywhere  accci)ted,  the  jjrccious  metals, 
if  in  excess  in  one  country,  soon  flow  spontaneously  into  other 
countries ;  whereas  the  sudden  increases  in  pai)er  money  are  dis- 


PRODUCTION.  219 

astrous,  since  they  are  always  confined  within  the  limits  of  a 
fixed  country  which  serves  as  a  closed  reservoir  whence  they 
cannot  flow. 

The  above  disadvantages,  which  render  paper  money  so  imper- 
fect an  instrument  of  exchange  when  compared  with  metallic 
money,  are  largely  minimized  when  the  government  is  a  wise  one 
and  issues  only  that  amount  of  paper  money  which  is  necessary 
for  actual  requirements  and  conforms  to  the  rules  set  forth  below. 
The  disadvantages  would  almost  entirely  vanish,  could  we  imagine 
an  international  agreement  entered  into  by  all  civilized  countries, 
by  which  they  would  all  bind  themselves  :  — 

Firstly.  To  confer  legal  tender  on  one  and  the  same  paper 
money ; 

Secondly.  Not  to  augment  its  quantity,  or  only  to  augment  it 
in  a  proportion  fixed  in  advance  and  calculated  for  each  country ; 
for  example,  according  to  the  increase  in  its  population. 

In  that  case,  the  value  of  paper  money,  though  always  conven- 
tional, yet  resting  as  it  would  henceforward  on  the  unanimous 
consent  of  the  nations,  would  rest  upon  almost  as  broad  and  as 
solid  a  basis  as  the  value  of  metallic  money  itself,  and  would  be 
less  subject  to  vary,  since  its  quantity,  instead  of  depending  on 
chance,  would  be  regulated  by  a  certain  and  fixed  law. 

II.     Whether  the  Creation  of  Paper  Money  is  Equivalent  to 
a  Creation  of  Wealth. 

Who  was  the  inventor  of  paper  money?  None  can  say.  It 
was  known  in  China  from  time  immemorial.  Antiquity  has  left 
to  us  several  specimens  of  money,  if  not  of  paper,  at  any  rate  of 
leather,  or  of  a  purely  conventional  value,  which  were  called  siege 
money,  because  they  had  been  generally  issued  in  beleaguered 
cities  to  take  the  place  of  the  metallic  money  which  was  growing 
scanty.  Paper  money  was  first  issued  on  a  large  scale  by  the 
financier  Law,  in  1 7 1 6  ;  all  the  world  knows  the  disastrous  catas- 
trophe to  which  his  system  led. 


220  PRINCIPLES    OF    POLITICAL    ECONOMY, 

The  men,  who  first  conceived  the  idea  of  making  paper  money, 
flattered  themselves  that  by  so  doing  they  were  increasing  the 
general  stock  of  wealth,  just  as  if  they  had  discovered  a  gold  mine 
or  had  effected  the  magnum  opus  of  the  transmutation  of  metals 
into  gold,  which  was  so  long  the  dream  of  alchemists. 

In  this  shape  the  idea  was  clearly  absurd,  for  it  presupposed 
the  creation  of  wealth  out  of  nothing.  Still  it  has  been  ridiculed 
too  much,  for  it  is  perfectly  true  that  the  emission  of  paper  money 
may  increase  in  a  certain  measure  the  existing  quantity  of  wealth 
in  a  given  country.  But  how?  It  was  Adam  Smith  who  first 
offered  an  explanation.  He  observes  that  the  metaUic  money 
which  circulates  in  a  country  is  unproductive  capital,  but  that 
the  substitution  of  paper  money,  by  setting  free  this  capital,  per- 
mits of  its  being  utilized  and  turned  to  productive  purposes.  In 
the  same  way  he  said,  in  a  comparison  that  has  become  celebrated, 
if  we  found  the  means  of  travelling  in  the  air,  we  could  restore  to 
cultivation  and  production  all  the  surface  of  the  ground  which  is 
now  occupied  by  roads. 

Still  this  ingenious  comparison  of  Adam  Smith's  leaves  us  not 
altogether  satisfied.  We  can  see  clearly  enough  that  from  the 
time  when  roads  and  railways  were  no  longer  required,  the  ground 
they  occupy  might  be  cleared  and  thus  put  under  cultivation  and 
used  for  production  (nearly  a  million  acres  in  France  alone);  but 
it  is  not  equally  easy  to  see  what  could  be  done  with  metallic 
money  from  the  time  when  it  could  be  dispensed  with  for  currency 
purposes.  Should  it  be  melted  down  to  be  made  into  gold  or 
silver  plate  and  earrings  or  pendants?  The  gain  would  be  but 
scanty.  No,  it  would  be  invested  abroad ;  there  the  advantage 
would  come  in.  France  has  a  capital  of  about  ;!^3 20,000,000 
worth  of  gold  and  silver  currency.  This  enormous  capital  facili- 
tates its  trade,  but  yields  no  profit.  But  suppose  we  find  a  means  of 
replacing  it  by  paper  money  ;  then  there  are  ;^3  20,000,000  which 
can  be  invested  abroad,  in  the  purchase  of  foreign  stock,  of  rail- 
way shares,  landed  estates,  or  ships,  or  be  devoted  to  the  renewing 
of  its  manufacturing  or  agricultural  machinery  and  implements ; 


PRODUCTION.  221 

these,  in  one  way  or  another,  would  give  an  interest  of  five  or 
six  per  cent,  i.e.  an  income  of  ^15,000,000  or  _;^2 0,000,000. 
This  might  be  Hkened  to  the  case  of  a  householder  who,  owning 
some  scores  of  thousand  pounds'  worth  of  silver  plate,  comes  to 
think  that  electro  would  serve  him  as  well,  and  therefore  realizes 
the  capital  stored  in  his  silver  plate  for  the  purpose  of  increasing 
his  income.  The  same  is  done  by  those  well-informed  persons  of 
private  means  who,  being  well  aware  that  money  gives  no  returns 
whilst  lying  idle  in  their  pocket  or  their  strong-box,  take  care 
to  keep  no  more  in  their  houses  than  is  absolutely  necessary  and 
invest  all  the  rest.  The  wealthiest  persons,  especially  in  England, 
are  often  those  who  have  least  money  at  home.  The  peasant  has 
a  secret  drawer  in  his  cupboard  full  of  napoleons  and  crowns,  but 
the  millionnaire  pays  his  tradesman  by  giving  him  a  check  on  his 
banker.  Nations  nowadays  do  the  same  ;  it  is  not  always  the  rich- 
est that  have  most  money.  Thus  while  France  has  8,000,000,000 
francs  in  cash,  England  contents  herself  with  ;j^i  20,000,000  :  she 
has  invested  the  rest.^ 

When,  therefore,  the  question  is  asked,  "  Does  it  lie  within  the 
power  of  a  government  or  a  banker  actually  to  augment  the  wealth 
of  a  country  by  the  emission  of  paper  money?"  it  is  not  perfectly 
correct  to  answer  in  the  negative.  As  a  matter  of  fact,  the  affair 
is  feasible,  but  only  up  to  the  total  amoicnt  of  metallic  7no7iey  in 
circulation.  By  replacing  the  8,000,000,000  francs  in  coin  that 
France  holds  by  an  equal  sum  in  notes,  the  emission  of  paper 
money  could  actually  increase  the  wealth  of  France  by  8,000,- 
000,000  francs,  or  at  any  rate  by  the  largest  part  of  that  sum. 

But  we  must  note  that  this  gain  would  be  realized  only  by  some 
countries,  not  by  all  at  once.  One  country  can  certainly  produc- 
tively utilize  its  metallic  stock  by  selling  it  abroad ;  but  if  every 
country  wished  to  do  the  same,  it  is  evident  that  none  of  them 

^  "  Opinions  differ  as  to  the  amount  which  is  in  circulation  at  this  time,  the 
estimates  varying  from  65  or  70  millions  even  up  to  1 10  millions."  Speech  of 
Mr.  G.  J.  Goschen,  Chancellor  of  the  Exchequer,  at  Leeds,  on  the  28th  Janu- 
ary, 1891.  —  J.  B. 


222  PRINCIPLES    OF    POLITICAL   ECONOMY. 

would  succeed.  Gold  and  silver  specie  being  offered  by  all  coun- 
tries seeking  to  get  rid  of  them,  and  being  demanded  by  none, 
would  become  a  drug  on  the  market,  and  henceforward  valueless. 
It  is  in  this  respect  that  Adam  Smith's  comparison  fails  in  com- 
plete application.  For,  if  the  means  of  dispensing  with  roads 
were  discovered,  the  result  would  be  different ;  all  countries  could 
equally  and  simultaneously  benefit  from  the  new  utility  they  would 
derive  from  the  ground  heretofore  devoted  to  means  of  communi- 
cation but  henceforward  available  for  productive  use. 

Still,  even  on  that  highly  improbable  hypothesis,  mankind  would 
always  find  it  to  its  advantage  to  do  without  the  precious  metals. 
For  it  would  save  henceforth  all  the  labor  that  is  yearly  devoted 
to  the  keeping  up  of  its  supply  of  metals,  to  turning  the  bullion 
into  specie,  to  filling  up  the  void  caused  daily  by  wear  and  tear 
and  by  accidental  loss,  and  especially  to  keeping  up  the  supply 
at  the  level  required  by  a  trade  and  a  population  that  are  ever 
increasing.  Is  this  labor  a  small  matter?  The  annual  produc- 
tion of  gold  and  silver  for  some  years  past  has  stood  at  the  figure 
of  about  _;^40,ooo,ooo.^  Now  the  precious  metals  fare  like  all 
other  commodities ;  when  there  is  no  monopoly  their  value  is 
practically  regulated  by  the  amount  of  labor  they  require.  There 
is  therefore  every  reason  to  believe  that  the  world,  in  order  to 
maintain  and  increase  its  supply  of  metals,  has  yearly,  whether  the 
year  be  good  or  bad,  to  support  something  like  four  or  five  hun- 
dred thousand  laborers,  the  equivalent  of  a  large  army.  Do  away 
with  the  necessity  of  using  the  precious  metals,  and  all  these  arms 
will  become  available  for  new  production.  So  much  the  greater 
will  be  the  productive  power  of  humanity. 

To  sum  up,  we  see  that  paper  money  increases  the  wealth  of  a 
country,  not,  as  was  formerly  believed,  in  the  proportion  in  which 
//  adds  to  the  stock  of  metallic  money,  but,  on  the  contrary,  in  the 
proportion  in  which  it  allows  of  a  diminutioji  in  that  supply. 

1  For  full  particulars  see  the  "  Report  from  the  Consuls  of  the  United  States 
on  Bimetallism  in  Europe  "  and  especially  the  translation  (in  Appendix)  of 
Professor  Soetbecr's  paper  on  "  Materials  towards  Elucidation  of  the  Economic 
Conditions  affecting  the  Precious  Metals"  (Washington,  18S7).  —  J.  B. 


PRODUCTION.  223 

Such  is  the  advantage  that  a  country  obtains  from  the  emission 
of  paper  money.  If  we  are  now  asked  what  is  the  advantage 
obtained  from  such  an  emission  by  a  government,  the  answer  is 
far  easier  to  understand.  When  a  government  falls  short  of  money, 
the  creation  of  paper  money  is  a  very  convenient  means  of  pay- 
ing its  contractors,  its  civil  servants,  its  soldiers,  and  its  stock- 
holders ;  in  a  word,  it  is  enabled  to  meet  all  its  expenses  without 
being  obliged  to  borrow,  and  consequently  without  the  necessity 
of  paying  interest.  Usually,  when  a  government  is  in  such  a  posi- 
tion, its  credit  is  not  of  the  highest ;  therefore,  if  it  had  to  borrow, 
the  rate  of  interest  would  probably  be  very  high,  and  thus  the 
use  of  paper  money  in  such  circumstances  effects  a  saving  which 
is  by  no  means  to  be  despised.  Many  States  have  had  recourse 
to  this  expedient,  and  have  in  general  come  off  well  enough,  with 
the  provision,  of  course,  that  in  their  issues  they  do  not  exceed 
the  limit  we  have  laid  down,  which  is  represented  by  the  amount 
of  metallic  money  in  circulation.  The  only  result  of  every  issue 
which  exceeded  this  limit  would  be  to  lower  prices,  and  to  inflict 
on  the  country  and  on  the  government  heavy  losses,  Avhich  would 
far  more  than  counterbalance  the  saving  to  which  we  have  just 
alluded. 

During  the  Franco-German  War  the  French  government  had 
need  of  money,  and  issued  notes  to  the  value  of  ^60,000,000. 
If  it  had  borrowed  this  sum,  it  would  have  had  to  pay  six  per  cent, 
or  ;;^3,6oo,ooo,  a  year.  Now  this  issue  cost  only  ;(^6oo,ooo  a 
year.  Thus  the  direct  issuing  of  this  paper  money,  the  cost  of 
manufacture  included,  could  have  been  effected  without  any  actual 
outlay  by  the  government ;  but  it  chose,  for  other  strong  reasons, 
to  use  the  services  of  the  Bank  of  France  at  the  payment  of  one 
per  cent  commission.  In  the  country  itself  there  was  altogether 
an  insufficient  quantity  of  money  in  circulation,  arising  either  from 
the  exportation  of  money  for  foreign  purchases,  or  from  its  being 
used  in  payment  of  the  war  indemnity,  or  more  probably  from  its 
being  hidden.  Thus  the  emission  of  these  notes,  by  re-establishing 
the  medium  of  exchange,  was  a  benefit  for  all ;  nay,  the  amount 


224  PRINCIPLES    OF    POLITICAL    ECONOMY. 

issued  was  actually  not  enough,  for  several  loan  societies  were 
obliged  to  form  themselves  into  a  syndicate  for  the  issue  of 
fractional  notes  under  five  francs  in  value. 


III.     The  Dangers  resulting  from  the  Use  of  Paper  Money, 
and  the  Means  of  preventing  them. 

Thus  the  advantages  that  paper  money  can  obtain,  either  for 
a  country  or  for  a  government,  are  real  enough,  but  they  may  be 
paid  for  dearly ;  indeed,  may  cost  more  than  they  are  worth.  Nay, 
some  economists  have  actually  gone  so  far  as  to  say  that  the  inven- 
tion of  paper  money  "  has  caused  more  calamities,  done  more 
harm,  and  killed  more  men  than  war  itself." 

Still  it  is  advisable  to  remark  that  such  grievous  consequences 
are  due  rather  to  the  imprudence  of  governments  th^m  to  the 
essential  nature  of  paper  money.  Experience  has  shown  that, 
when  the  emission  of  paper  money  is  entrusted  to  banks,  instead 
of  being  carried  out  directly  by  the  government,  it  is  usually 
effected  with  far  more  moderation,  and  offers  far  fewer  dangers. 
At  the  present  day,  therefore,  most  governments  have  adopted  this 
plan.  See  in  the  chapter  on  Credit  the  section  on  "The  Differences 
between  the  Bank-note  and  Paper  Money." 

Indeed,  the  ill  effects  of  paper  money  are  only  produced  when 
the  government  has  chosen  to  overstep  the  limit  we  have  marked 
out,  and  to  issue  it  to  an  amount  which  exceeds  the  actual  needs ; 
and  these  requirements  are  themselves  excellently  measured  by 
the  amount  of  metallic  money  habitually  in  circulation.  But  that 
government  would  be  rash  which  ventured  to  the  very  margin  of 
this  limit.  For  example,  the  French  government  would  be  daring 
if  it  issued  8,000,000,000  francs  of  paper  money,  relying  on  the 
statistics  that  this  is  the  actual  sum  of  the  metallic  currency  of 
France  ;  for  a  certain  amount  of  smaller  change  must  always  be 
left  in  circulation,  were  it  only  token  money.  Nevertheless,  an 
involved  government  is  sorely  tempted  to  cross  this  fatal  limit ; 
many  have  done  so,  and  have  ended  in  bankruptcy. 


PRODUCTION.  225 

Every  one  knows  the  lamentable  story  of  the  assignais,  which 
were  issued  by  the  Convention  and  the  Directory,  up  to  the  extrav- 
agant figure  of  40,000,000,000  francs  which  was  probably  twenty 
times  higher  tli-an  the  amount  of  coined  money  then  in  existence. 
Even  if  the  issue  had  consisted  of  good  gold  and  silver  pieces,  it 
would,  none  the  less,  have  induced  a  serious  depreciation  of 
metallic  money,  since  the  amount  in  circulation  would  have  been 
twenty  times  larger  than  was  required.  We  can  therefore  imagine 
what  must  have  been  the  depreciation  of  a  mere  paper  currency. 
The  loo-franc  assignat  fell  in  value  to  a  few  halfpence,  and  a  pair 
of  boots  was  sold  for  twenty  of  them ;  i.e.  at  a  nominal  price  of 
4000  francs.     The  result  was  bankruptcy. 

We  may  affirm  that  in  the  present  state  of  economic  science 
there  is  literally  no  excuse  for  any  government  overstepping  the 
limit ;  for  there  are  certain  signs,  familiar  to  the  economist  and  to 
the  financier,  which  betoken  danger  even  when  far  off,  and  which 
give  surer  indications  than  the  pilot  can  obtain  from  his  sounding- 
lead  or  from  his  landmarks. 

Firstly.  The  first  is  the  premium  on  gold.  As  soon  as  paper 
money  has  been  issued  in  too  large  a  quantity,  in  relation  to  actual 
requirements,  in  accordance  with  the  constant  law  of  value  it 
begins  to  be  depreciated,  and  the  first  effect  of  this  depreciation, 
its  first  indicating  sign,  though  it  is  of  itself  not  yet  visible  to  the 
public,  is  that  metallic  money  rises  to  a  premium.  For  metallic 
money  is  not  touched  by  this  incipient  depreciation  of  the  mone- 
tary system.  Why  should  it  be?  for  gold  and  silver  still  retain 
their  former  value.  Bankers  and  money-changers  begin  to  seek  it 
for  the  purpose  of  sending  it  abroad  in  the  form  of  bullion,  and 
pay  a  small  premium  to  obtain  it.  It  is  now  that  the  financier 
should  keep  his  eyes  open.  When  at  the  close  of  the  war  of  1870 
France  was  under  the  paper  money  system,  and  all  its  gold  went 
into  Germany  to  pay  the  war  indemnity,  gold  immediately  rose 
to  a  preminm  of  2\  per  cent  (fifty  centimes  on  a  twenty-franc 
piece).  That  was  not  a  great  rise,  but  it  was  enough  to  put  the 
government  on  its  guard,  and  the  danger  was  averted. 


226  PRINCIPLES    OF    POLITICAL    ECONOMY, 

Secondly.  The  second  is  the  7ise  in  the  rate  of  excharige.  Bills 
payable  abroad,  i.e.  bills  of  exchange,  occasion  a  great  business 
movement  in  all  the  commercial  centres  of  the  world.  They  have 
a  quoted  price  like  any  other  commodity,  which  is  just  what  is 
called  the  rate  of  exchange.  Now  these  foreign  bills  are  always 
payable  in  gold  or  in  silver,  more  often  in  gold,  since  that  is  the 
international  money.  If  then,  for  example,  France  is  under  the 
paper  money  system,  and  this  paper  begins  to  be  depreciated, 
paper  on  London  or  on  Brussels  will  rise  in  price  just  as  gold 
itself,  being  in  fact  equivalent  to  gold ;  when,  therefore,  the 
twenty-franc  gold  piece  is  at  a  premium  of  two  per  cent  and  is 
sold  for  20  francs  40  centimes,  the  lOo-franc  bill  of  exchange 
on  Brussels  will  rise  to  an  equal  premium  and  be  sold  for 
102  francs. 

Thirdly.  The  third  is  the  flight  of  metallic  mo7iey.  However 
slight  be  the  depreciation  of  paper  money,  unless  this  is  imme- 
diately remedied  by  the  withdrawal  of  the  excessive  paper,  and 
if  it  is  allowed  to  continue  and  become  aggravated,  all  the  metallic 
money  will  speedily  disappear  from  the  country.  This  phenome- 
non is  a  sure  characteristic,  and  is  produced  in  all  countries 
where  the  paper  money  system  has  been  used  in  excess.  We 
explained  the  reasons  for  this  when  dealing  with  Grcsham's  Law, 
and  need  not  repeat  them  here. 

Fourthly.  Finally,  the  fourth  sign  is  the  rise  ifi  prices.  This 
appears  later  on,  and  shows  that  the  evil  is  already  serious  and 
that  the  allowable  limit  has  been  greatly  exceeded.  As  long, 
indeed,  as  the  depreciation  of  paper  money  is  slight,  say  two  or 
three  per  cent,  prices  (those  of  the  precious  metals  excepted)  are 
not  affected.  The  hatter  or  the  bootmaker  will  not  raise  the  price 
of  his  goods  for  so  trifling  a  difference,  and  even  were  he  to  do 
so,  the  pubHc  would  not  perceive  it.  But  as  soon  as  the  depre- 
ciation of  paper  money  reaches  10,  15,  or  20  per  cent,  then  all 
tradesmen  and  producers  raise  their  prices  in  proportion.  The 
evil,  which  till  then  had  been  in  the  latent  state,  suddenly  bursts 
forth  and  fully  displays  itself  to  the  public  gaze. 


PRODUCTION,  227 

Business  men  and  producers  are  not  disturbed  by  this  rise  in 
prices.  They  even  find  it  highly  agreeable,  though  in  truth  the 
pleasure  is  a  deceptive  one  (for  if  they  sell  everything  dearer, 
they  have  to  pay  more  too),  and  even  become  so  accustomed  to 
it  that  they  cling  to  the  paper  money  system  and  oppose  its 
aboUtion,  because  that  would  result  in  a  return  to  the  old  prices. 
When  the  United  States  were  under  the  paper  money  system, 
there  was  a  whole  party,  significantly  called  inflationists,  who 
moved  heaven  and  earth  to  maintain  that  system  and  even  now 
clamor  for  a  return  to  it. 

We  must  note  that  the  old  prices  subsist  for  those  who  can  pay 
in  metallic  money,  that  is  to  say,  if  there  is  any  of  it  left,  for  it  has 
lost  none  of  its  value,  but  has  gained.  It  is  now  possible  to  see 
the  curious  spectacle  of  a  duplication  of  prices ;  henceforth  each 
commodity  has  two  prices,  one  payable  in  metallic  money,  the 
other  in  paper  money,  and  the  difference  between  the  two  exactly 
measures  the  depreciation  of  the  latter.  Thus  in  Russia  an  article 
which  is  sold  for  eight  roubles  in  paper  needs  only  five  or  six 
roubles  in  silver,  for  paper  there  is  depreciated  to  the  extent  of 
25  or  30  per  cent. 

As  soon,  therefore,  as  a  government  perceives  the  premonitory 
signs,  viz.  a  premium  on  gold  or  a  rise  in  the  rate  of  exchange, 
its  first  duty  is  to  absolutely  forbid  any  new  issuing  of  paper  money, 
for  it  has  reached  the  point  at  which  it  must  stop.  If  it  has 
unfortunately  overstepped  that  Hmit,  and  first  beholds  the  appear- 
ance of  the  ominous  symptom  of  duphcation  of  prices,  it  must 
endeavor  to  retrace  its  steps  and  destroy  all  the  paper  money 
as  it  returns  to  the  treasury,  until  it  has  been  reduced  to  the  due 
proportions.  But  such  a  heroic  remedy,  which  involves  the  par- 
tial suppression  of  the  national  revenue,  is  not  within  the  power 
of  all  governments.  They  cannot  employ  it  unless  they  are  in  a 
position  to  do  without  a  portion  of  their  revenue,  that  is  to  say, 
they  must  have  a  surplus  on  their  budgets. 


228  PRINCIPLES    OF    POLITICAL    ECONOMY. 

IV.   How  even  Paper  Money  may  be  dispensed  with. 

Though  paper  money  has  the  effect  of  economizing  metalHc 
money,  still,  that  advantage,  as  we  have  seen,  is  only  obtained  at 
the  price  of  serious  disadvantages  and  even  great  dangers.  If, 
then,  it  were  possible  to  find  some  means  of  economizing  metallic 
money,  without  having  recourse  to  so  dangerous  an  expedient, 
that,  undoubtedly,  would  be  highly  beneficial. 

Now,  such  a  means  does  exist,  and  it  is  both  far  more  radical 
and  far  less  harmful.  It  simply  consists,  not  at  all  in  replacing 
one  costly  instrument  of  exchange  by  another  which  costs  nothing, 
but  in  doing  away  with  every  instrumejit  of  exchange.  The  work- 
ing of  this  mechanism  may  be  explained  in  the  following  way. 

Firstly,  sales  for  cash  on  delivery  —  i.e.  the  exchange  of  com- 
modities for  money  —  are  replaced  by  sales  for  cash  at  a  future 
date  ;  that  is  to  say,  by  the  exchange  of  a  commodity  for  a  prom- 
ise to  pay,  for  it  comes  to  nothing  else.  I  deliver  you  my  com- 
modity, and  receive  in  exchange  a  promise  to  pay,  represented  by 
a  note  or  by  a  bill  of  exchange.  (For  the  understanding  of  this 
chapter  the  reader  should  refer  to  the  chapter  on  Credit}) 

Secondly,  once  that  these  promises  to  pay  have  been  made,  we 
seek  to  satisfy  them  in  some  other  way  than  by  actual  payment, 
i.e.  than  by  the  remittance  of  money  in  specie.  Indeed,  legal 
science  affords  us  several  means  of  attaining  this  end ;  e.g.  by 
cojnpefisatio,  in  virtue  of  which  two  promises  to  pay  are  extin- 
guished when  two  parties  are  mutually  creditor  and  debtor,  one 
to  the  other ;  or  by  confusio,  when  one  party  is  at  one  and  the 
same  time  creditor  and  debtor ;  or  by  novatio,  when  one  promise 
to  pay  is  extinguished  by  the  making  of  a  new  promise. 

The  extreme  complexity  of  social  relations  and  the  fact  that 
each  one  of  us,  at  any  rate  each  producer,  is  in  turn  both  buyer  and 
seller,  render  far  easier  than  could  be  imagined  at  the  first  glance, 
the  employment  of  these  different  ways  of  extinguishing  credit. 

It  was  in  international  trade,  in  exchange  between  country  and 
country,  that  men  first  learned  to  turn  to  credit  and  to  dispense 


PRODUCTION.  229 

with  money.  The  difficulty  and  the  dangers  of  carrying  large 
quantities  of  specie  for  great  distances  inspired,  perhaps  the  Lom- 
bards, or  all  and  sundry,  with  the  notion  of  the  bill  of  exchange. 
Let  us  see  how  this  result  is  reached  in  the  practical  working  of 
actual  business. 

Let  us  suppose  that  French  merchants  have  sold  to  England 
wine  to  the  value  of  ^4,000,000.  They  have  sold  it  for  cash 
at  a  future  date ;  i.e.  instead  of  receiving  the  value  in  specie, 
they  have  drawn  bills  of  exchange  to  the  value  of  ^4,000,000 
upon  their  English  debtors.  Let  us  suppose,  too,  that  English 
coal  companies  have,  for  their  part,  sold  coal  to  the  value  of 
;^4, 000,000  to  French  manufacturers,  and  have  drawn  bills  of 
exchange  of  equal  value  payable  on  France.  When  the  French 
manufacturers  wish  to  settle  for  their  purchases,  will  they  send 
over  ;^4, 000,000  in  specie  ?  Certainly  not ;  they  will  merely 
transfer  to  the  wine-sellers  the  ;^4,ooo,ooo  worth  of  bills  payable 
in  England.  They  will  not  find  them  difficult  to  obtain ;  for,  as 
we  shall  see,  there  is  a  certain  class,  called  bankers,  whose  very 
business  it  is  to  trade  in  bills  of  exchange,  i.e.  to  seek  for 
paper  payable  abroad  in  order  to  hand  it  over  to  those  who  need 
it.  The  French  manufacturers  will  then  send  over  to  their  cred- 
itors, the  coal  companies,  not  the  ;^4,ooo,ooo  in  specie,  but  the 
corresponding  value  in  bills,  saying,  "  obtain  payment  from  your 
fellotv-countrymen."  They  will  do  so  ;  and  thus  the  absurdity  will 
be  avoided  of  sending  two  streams  of  cash  across  the  Channel,  in 
opposite  directions. 

Our  instance,  it  is  true,  supposes  that  there  are  two  countries 
which  are  reciprocally  debtor  and  creditor  one  to  the  other  for  a 
precisely  equal  sum  —  a  not  very  likely  hypothesis.  But  if  it 
did  not  actually  exist,  the  same  result  can  be  arrived  at,  though 
in  a  roundabout  way.  Let  us  grant  that  France  has  bought 
;^2,ooo,ooo  worth  of  tea  from  China,  but  has  sold  her  noth- 
ing. Compensation,  in  such  a  case,  appears  to  be  impossible. 
Would  it  not  then  be  necessary  for  France  to  send  these 
_;j^2,ooo,ooo  to  China  in  specie  ?     Perhaps  not,  after  all.     Though 


230  PRINCIPLES    OF    POLITICAL    ECONOMY. 

France  has  sold  nothing  to  China,  other  countries  in  the  world 
have,  and  are  consequently  her  creditors.  Then  the  French  have 
nothing  to  do  but  to  apply  to  these  other  countries,  and  obtain 
their  bills.  France  is  now  herself  a  creditor  of  China,  and  noth- 
ing is  more  easy  than  to  come  to  a  balance  with  her.  For 
example,  it  is  possible  that  England  has  sold  China  ^^2,000,000 
worth  of  opium ;  in  that  case  France  will  have  nothing  to  do 
but  to  obtain  that  bill  (technically  she  has  only  to  buy  in  London 
paper  payable  on  Shanghai  or  Hong-Kong) .  But  it  will  be  said, 
in  any  case  France  will  have  to  pay  ^2,000,000.  What  does 
it  matter  whether  it  be  to  England  or  to  China?  It  matters 
a  great  deal ;  for  it  is  only  required  that  France  herself  should  be 
England's  creditor  for  ;^2,ooo,ooo  (say  for  wine  she  has  sold 
her),  and  the  transactions  between  the  three  countries  will  be 
thus  settled  without  untying  a  purse  string. 

Without  such  ingenious  combinations  international  trade  would 
be  totally  impossible  ;  for,  if  France  had  to  pay  in  coin  each  year 
for  one  hundred  and  sixty  thousand  million  pounds'  worth  of  im- 
ports, where  could  she  get  this  enormous  quantity  of  money  ?  She 
hardly  possesses  any  more.  In  fact,  the  amount  of  coin  which 
travels  from  country  to  country  never  represents  more  than  a  small 
fraction  —  8  or  10  per  cent  at  the  most  —  of  the  value  of  the 
commodities  exchanged. 

In  home  trade,  in  the  relations  between  private  persons,  we 
are  far  less  advanced. 

For  the  settlement  of  transactions  between  private  persons, 
without  having  recourse  to  money,  we  can,  in  the  first  place,  use 
the  same  system  as  between  country  and  country  ;  i.e.  sell  for  cash 
at  a  future  date,  create  bills  of  exchange,  and  pass  them  from 
hand  to  hand,  till  they  are  finally  extinguished  by  compensatio  or 
confusio.  For  example,  I  am  a  lawyer,  and  one  of  my  clients, 
who  is  a  wine-merchant,  owes  me  a  sum  of  money.  Instead  of 
paying  me,  he  accepts  a  bill  in  my  favor.  When  I  wish  to  settle 
my  account  with  my  bookseller,  I  can  hand  him  this  bill  in  pay; 
mcnt.     If  it  happens  that  the  bookseller  gets  his  wine  from  the 


PRODUCTION.  231 

same  wine-merchant,  he  in  his  turn  will  only  have  to  hand  this 
bill  in  payment.  Here  is  a  fuller  illustration :  In  the  same  town 
let  there  be  three  persons,  whom  we  will  call  A,  B,  and  C.  Let 
us  suppose  that  A  is  a  creditor  of  B's,  B  a  creditor  to  the  same 
amount  of  C's,  and  C  in  his  turn  a  creditor  of  A's.  This  is  shown 
in  the  following  diagram  :  — 


Is  it  not  clear  that,  instead  of  the  sum  of  money  owed  by  the 
three  debtors  respectively  to  their  three  creditors,  having  to  pass 
through  a  complete  circuit,  it  would  be  far  simpler  to  settle  the 
whole  transaction  without  paying  a  farthing  in  cash?  We  may 
be  told  that  it  is  highly  improbable  that  C  should  be  a  creditor 
of  A's,  and  should,  as  it  were,  be  purposely  placed  where  he  is,  in 
order  to  close  the  circle.  No  doubt  it  is  improbable.  But  if  C  is 
not  a  creditor  of  A's,  he  will  stand  in  that  relation  to  D,  E,  F,  G, 
H,  etc.,  until  we  finally  come  to  a  man  who  in  his  turn  is  a  creditor 
of  A's,  and  then  the  problem  is  solved.  The  more  persons  there 
are  in  the  operation,  the  better  chance  there  will  be  of  closing  the 
circle. 

But  we  can  conceive  an  infinitely  more  convenient  and  simple 
plan.  Let  us  suppose  that  all  Frenchmen,  without  exception, 
have  opened  an  account  at  one  and  the  same  bank,  which  has  the 
duty  of  keeping  for  each  of  its  clients  all  their  receipts,  by  placing 
them  to  their  credit,  and  to  settle  for  them  all  their  payments,  by 
putting  these  to  their  debit. 

By  such  an  organization  as  this,  we  might  dispense  with  the 
services  of  money,  even  to  the  last  farthing.  Every  time  I  made 
a  purchase,  instead  of  paying  the  tradesman,  1  might  confine 
myself  to  authorizing  the  bank  to  place  the  same  to  my  debit  and 


232  PRINCIPLES    OF    POLITICAL    ECONOMY. 

to  the  tradesman's  credit ;  the  latter,  in  his  turn,  would  do  the 
same  every  time  he  mijde  any  purchases.  If,  instead  of  settling 
expenditure,  I  had  to  make  an  investment,  it  would  be  just  the 
same ;  the  bank  would  enter  to  my  debit  the  sum  representing 
the  value  of  the  stock,  and  an  equal  value  to  the  credit  of  the 
company  which  issued  it,  or  of  the  former  holder  who  has  trans- 
ferred it  to  me.  At  the  end  of  the  year  the  bank  would  send 
each  party  his  account,  which  would  be  closed  (for  the  year)  by 
a  balance  in  favor  either  of  the  banker  or  the  client.  This  bal- 
ance would  be  carried  forward  for  the  next  year,  to  the  client's 
debit  in  the  former,  to  his  credit  in  the  latter,  case,  and  so  forth. 
It  is  evident  that,  on  this  system,  the  sum  total  of  all  transactions 
could  be  theoretically  settled  by  mere  settlements  on  paper,  by 
transfers  of  if  ems,  as  they  are  called. 

This  hypothesis,  by  the  way,  is  virtually  realized  in  England, 
where  all  the  English  of  the  wealthy  classes  deal  with  a  banker, 
whose  very  business  it  is  to  perform  this  double  operation  on 
their  account.  It  is  true  that  they  have  not  all  the  same  banker ; 
but  as  all  the  prominent  banks  have  a  current  account  with  the 
principal  London  banks,  and  as  the  latter,  in  their  turn,  have 
always  an  account  open  at  the  Bank  of  England,  the  situation  is 
practically  the  same,  though  somewhat  more  complex. 

In  practice,  the  matter  is  done  in  the  following  manner  :  Every 
time  that  an  Englishman  has  a  payment  to  make  to  his  trades- 
man, for  example,  he  hands  him  a  check,  —  that  is  to  say,  a  bill 
on  his  banker.  The  tradesman  docs  not  take  the  trouble  of  going 
to  cash  the  check,  but  sends  it  to  his  own  banker.  It  comes 
to  pass,  then,  that  all  the  bankers  in  England  are  reciprocally 
debtors  and  creditors  to  one  another  for  enormous  sums.  Their 
correspondents  in  London  have  only  to  communicate  with  one 
another  and  balance  the  accounts.  They  do  this  by  meeting 
every  day  at  the  Clearing  House,  where  they  thus  settle  by  means 
of  simple  compensatio  transactions,  which,  of  late  years  have 
amounted  to  the  figure  of  ;;/^2 0,000,000  as  a  daily  average,  or 
more  than  ;^6,ooo,ooo,ooo  a   year.      The  New  York   Clearing 


PRODUCTION.  233 

House  settles  bills  of  still  higher  amounts,  to  the  figure  of  about 
;^i 0,000,000,000.  For  the  settlement  of  the  differences  on  these 
large  operations,  the  use  of  metallic  money  is  only  needed  in  infin- 
itesimal proportions. 

V.    How  the  Improvements  in  Exchange  bring  us  back 
to  Barter. 

The  evolution  we  have  just  followed  affords  a  most  singular 
spectacle.  It  is  clear  that  its  tendency  is,  by  altogether  doing 
away  with  the  instrument  of  exchange,  to  bring  us  back  to  the 
direct  exchange  of  commodity  for  commodity,  —  in  fine,  to  barter. 
These  ingenious  and  complex  procedures,  which  stand  for  the 
latest  dicta  of  economic  progress,  curiously  resemble  the  primitive 
methods  of  still  barbarous  societies.  It  is  not  the  first  time  that 
the  historical  development  of  the  nations  has  displayed  this  singu- 
lar course  of  the  human  mind,  which  first  reaches  the  limit  of  its 
journey,  and  then  appears  to  return  almost  to  its  point  of  depar- 
ture, having  thus  described  one  of  those  huge  circles  by  which  the 
imagination  of  Vico  was  so  powerfully  impressed. 

The  present  phenomenon  is  analogous  to  that  which  struck  us 
when  dealing  with  traders.  We  saw  that  social  evolution  first  of 
all  developed  the  class  of  traders  whose  function  it  was  to  facili- 
tate the  relations  between  producers  and  consumers ;  we  then 
observed  that  this  same  evolution  is  nowadays  tending  to  gradually 
eliminate  this  class  of  traders,  and  to  return,  by  more  simple  and 
less  costly  methods,  to  the  putting  of  producer  and  consumer  into 
direct  communication. 

International  trade,  in  fact,  is  now  actually  carried  on  by  barter ; 
for  each  country,  to  a  greater  or  less  extent,  pays  for  its  imports 
by  its  exports  ;  in  other  words,  exchanges  its  products  for  foreign 
products. 

A  kind  of  barter,  too,  would  be  returned  to,  on  the  hypothesis 
we  have  supposed,  by  which  all  the  inhabitants  of  a  country  would 


234  PRINCIPLES    OF    POLITICAL    ECONOMY. 

be  clients  of  one  and  the  same  bank ;  for  if  no  one  had  any 
further  need  of  money,  it  would  be  because  each  man  paid  for  the 
products  or  the  services  he  might  require  by  his  own  products  or 
his  own  services. 

Once  more,  a  species  of  barter  is  virtually  in  operation  at  that 
wonderful  institution,  the  Clearing  House ;  for  those  huge  bundles 
of  checks,  bills  of  exchange,  and  business  papers,  which  are  ex- 
changed and  set  against  each  other  day  by  day,  are  nothing  but 
the  symbols  of  piles  of  chests,  of  bales,  of  casks,  which  have  been 
exchanged  as  material  goods.  Thus,  by  those  who  are  behind  the 
scenes,  the  Clearing  House  is  viewed  in  the  light  of  a  colossal 
bazaar,  analogous  to  those  held  at  Kashgar  or  at  Timbuctoo. 
The  only  difference  is  that  it  is  not  the  goods  themselves  which 
are  exchanged,  but  the  warrants  which  stand  for  them. 

VI.    The  Decadence  of  the  Precious  Metals. 

If,  as  is  scarcely  doubtful,  the  methods  just  studied  are  propa- 
gated and  spread  over  the  whole  world,  a  day  may  come  when 
men  will  no  longer  have  need  of  coin  to  use  in  exchange,  and  the 
precious  metals  will  prove  to  have  lost  nearly  all  their  value. 

But  will  they  not  at  least  retain  their  value  from  the  industrial 
point  of  view  ?  That  is  not  certain,  for  even  in  that  quarter  the 
high  position  they  have  held  in  the  world  might  be  gravely  shaken. 
The  more  refined  taste  of  the  present  day  attaches  little  value  to 
the  costliness  of  the  material,  and  only  appreciates  finish  in  form 
and  perfection  of  workmanship.  Luxury,  whether  private  or  pub- 
lic, no  longer  dreams  of  covering  its  monuments  with  gold,  after 
the  fashion  of  Solomon,  who  hung  three  hundred  bucklers  of  gold 
from  the  walls  of  the  temple  ;  neither  does  it  love  to  crowd  its 
sideboards  with  massive  gold  and  silver  plate,  as  was  the  practice 
of  our  forefathers ;  nor  is  it  the  custom  to  bedizen  garments  with 
embroidery  and  gold  lace,  as  was  done  by  the  courtiers  of  Francis 
I.  on  the  field  of  the  Cloth  of  Gold,  and  as  is  still  done  by  Eastern 
women,  who  wear  their  dowries  round  their  necks.     No  ;  it  is  the 


PRODUCTION.  235 

cheapest  materials  —  wood,  terra-cotta,  earthenware,  copper,  at 
the  most,  bronze  —  that,  when  once  fashioned  by  an  artist's  hand, 
adorn  our  palaces  and  our  dwellings ;  and  as  to  dress,  the  latest 
decrees  of  fashion  forbid  men  to  wear  jewelry  set  in  gold. 

Thus,  from  whatever  point  of  view  we  may  look,  the  metals 
called  "  precious  "  seem  to  be  on  the  eve  of  losing  the  epithet 
which  has  always  been  bestowed  on  them.  A  strange  history 
theirs  has  been,  and  it  may  in  the  future  serve  to  astound  our 
descendants.  How  long  their  reign  has  been,  and  to  all  appear- 
ance how  firmly  established  !  From  being  in  the  first  rank  of 
riches,  they  succeeded  in  becoming  the  very  type  of  wealth  —  the 
only  wealth  that  men  coveted,  the  only  wealth  for  which  they 
contended.  Alchemists,  toiling  over  the  magnum  opus  of  the 
transmutation  of  metals  into  gold  ;  emigrants,  in  the  sixteenth  cen- 
tury as  in  the  nineteenth,  streaming  from  their  homes,  to  bring 
back  from  a  fabled  Eldorado  a  little  of  the  coveted  metal ;  nego- 
tiations, treaties,  battles  waged  on  land  and  sea  by  nations  warring 
for  their  colonial  or  their  mercantile  systems,  —  in  such  callings 
and  by  such  means  have  men  striven  and  struggled  to  obtain  these 
precious  metals.  But  now  the  attributes  which  raised  them  to 
their  exalted  station  seem  to  be  dropping  off,  one  by  one,  like  the 
jewels  from  off  a  diadem.  Supplanted  as  instruments  of  exchange 
by  the  improvements  effected  in  commerce  and  in  credit,  despised 
as  articles  of  luxury  by  the  fashion  of  our  day,  it  may  be  that,  after 
having  been  so  long  the  very  type  of  wealth,  gold  and  silver  are 
destined  to  be  one  day  erased  from  the  catalogue  of  riches  ! 


CHAPTER  VI. 
INTERNATIONAL    TRADE. 

I.    Why  Exaggerated  Importance  is  attached  to  Foreign 

Trade. 

Although  international  —  that  is  to  say,  foreign  —  trade  has 
attracted  far  more  lively  attention  than  home  trade,  still  it  is  much 
less  important.  The  foreign  trade  of  France,  even  when  including 
only  the  "  general  "  branch  of  it,  never  exceeds  ;j^3 60,000,000  or 
^400,000,000  sterHng,  whereas  the  trade  done  at  home,  though 
much  more  difficult  to  calculate,  cannot  be  less  than  ^^  1,600,000,- 
000  or  ^2,000,000,000.  The  term  "general  trade "  applies  to  the 
movement  of  all  goods  that  enter  or  leave  France,  whereas  "  special 
trade  "  refers  only  to  the  movement  of  those  goods  which  have 
either  been  produced  at  home  or  are  destined  for  home  con- 
sumption. Thus  the  latter  term  comprises  neither  goods  in  transit 
nor  goods  for  re-exportation.  The  total  sum  of  the  wealth  pro- 
duced in  France  cannot  be  reckoned  at  less  than  ^800,000,000 ; 
but  as  each  article  passes  through  at  least  two  or  three  different 
hands  before  reaching  the  consumer,  the  movement  of  the  ex- 
changes occasioned  by  this  production  must  be  valued  at  twice  or 
three  times  that  sum. 

The  proportion  between  foreign  and  home  trade  varies  for  each 
country,  according  to  its  position,  its  extent,  and  its  own  resources. 
We  may  even  say  that,  in  a  general  way,  the  proportion  of  the 
foreign  tends  to  increase,  inasmuch  as  the  facility  of  communi- 
cation better  and  better  enables  each  country  to  secure  foreign 
products  from  far  off,  and  likewise  to  send  its  own  products '  to 
distant  lands. 
236 


PRODUCTION.  237 

Nevertheless,  it  still  remains  true  that,  for  a  great  country,  com- 
merce with  other  countries  plays  only  a  moderate  part  in  the 
general  movements  of  its  trade.  In  this  point,  the  position  of  a 
country  differs  from  that  of  individuals ;  in  our  modem  societies, 
division  of  occupations  has  been  pushed  to  its  furthest  limits,  so 
that  each  of  us,  as  already  shown,  scarcely  produces  anything  at  all 
save  on  behalf  of  his  neighbors,  and  hardly  consumes  aught  but 
what  has  been  produced  by  his  neighbors.  Thus  all  he  produces 
and  all  he  consumes  must  undergo  the  operation  of  exchange.  It 
is  not  the  same  when  we  deal  with  a  country,  especially  a  great 
country.  If  we  wish  to  compare  it  with  a  private  person,  it  should 
be  likened  to  a  landed  proprietor  residing  on  his  own  estate,  who, 
himself  producing  the  greater  part  of  what  he  consumes,  needs 
only  buy  from  outside  his  land  what  he  does  not  produce  himself, 
and  consuming,  too,  most  of  what  he  produces,  needs  only  sell  to 
others  the  surplus  of  his  crops.  This  remark  is  not  a  needless 
one,  for  as  we  shall  see,  when  studying  the  protectionist  system, 
popular  opinion  tends  to  conceive  a  country  in  the  shape  of  a 
trader,  who  does  nothing  but  buy  and  sell. 

II.   Why  International  Trade  always  tends  to  take  the 
Shape  of  Barter. 

One  more  difference  must  be  noted  between  international  trade 
and  exchange  between  individuals  :  the  former  is  almost  exclu- 
sively effected  by  means  of  barter,  commodities  being  given  for 
commodities,  and  money  intervenes  in  very  slight  measure.  If  we 
take  from  the  custom-house  statistics  the  entries  and  goings  of  coin 
and  bullion  and  compare  them  with  the  whole  sum  of  exports 
and  imports,  we  see  that  hard  money  scarcely  ever  stands  for  more 
than  7  or  8  per  cent.  The  following  are  the  French  figures  for 
the  last  three  years,  in  millions  of  francs  :  — 

Coin  and 
Years.  Goods.     Bullion. 

18S7 7272       668 

1888 7354       567 

1889 8020       681 


238  PRINCIPLES    OF    POLITICAL    ECONOMY. 

[Moreover,  from  the  figures  in  the  column  relating  to  Coin  and 
Bullion,  we  ought  to  deduct  a  quarter  or  a  third,  which  is  in  the 
form  of  bullion,  is  destined  for  industrial  purposes,  and  is  thus  a 
real  commodity.]  This  circumstance  is  specially  worthy  of  note ; 
for,  as  we  shall  see  when  treating  of  the  protectionist  system,  men 
are  tempted  to  believe  that  a  country,  just  like  a  private  person, 
must  pay  in  money  for  all  it  buys,  and  receive  in  money  the  total 
sum  of  all  it  sells.  That  is  altogether  incorrect ;  exchange  between 
countries  is  effected  like  exchange  between  savages,  —  one  product 
for  another,  on  the  principle  of  do  nt  des,  though,  of  course,  all  due 
reserve  should  be  made  for  possible  improvements  in  the  methods 
employed. 

The  following  are  the  reasons  for  this  apparently  singular  cir- 
cumstance :  — 

First  of  all,  had  international  exchanges  to  be  settled  by  specie, 
an  amount  of  coin  would  be  required  which  would  be  out  of  all 
proportions  to  that  at  the  disposal  of  any  particular  country. 
England  has  in  circulation  not  more  than  ;^i  20,000,000  or 
;^ 1 60,000,000,  and  this  she  absolutely  needs  for  her  home  circu- 
lation ;  how,  then,  could  she  face  an  importation  which  yearly 
reaches  something  like  the  figure  of  ^^400,000,000  ?  Even  France, 
which  of  all  the  countries  in  the  world  is  the  best  provided  with 
money  (we  know  that  it  is  reckoned  to  be  about  ;j^3 20,000,000), 
would  be  sorely  pressed  to  settle  in  money  all  her  foreign  pur- 
chases, which  usually  exceed  ;^i 60,000,000  a  year. 

Further,  even  were  we  to  admit  that,  by  a  most  improbable 
combination  of  circumstances,  a  country  could  succeed  in  always 
giving  money  and  in  always  receiving  it,  in  any  case  such  an 
abnormal  position  could  not  be  maintained  for  long.  The  very 
force  of  circumstances  would  speedily  overturn  it,  only  to  replace 
it  by  a  diametrically  opposite  position. 

Let  us  suppose  that  France  always  demands  and  receives  money 
in  exchange  for  her  exported  goods.  On  this  hypothesis,  she 
would  have  to  receive,  in  round  numbers,  from  abroad  about 
;^i  20,000,000  each  year.      In  less  than  three  years,  then,  the 


PRODUCTION.  239 

amount  of  money  in  circulation  in  France  would  be  doubled,  and 
in  ten  years  quadrupled.  Then  the  prices  of  all  articles  would  also 
be  doubled  or  quadrupled.  On  the  other  hand,  in  foreign  coun- 
tries, which  would  be  robbed  of  their  money  for  the  benefit  of  the 
French,  prices  would  constantly  fall.  Now,  on  such  conditions,  it 
may  be  taken  as  certain  that  the  current  of  exportation  would 
speedily  stop  ;  for  we  rarely  see  commodities  go  from  places  where 
they  are  dear  to  where  they  are  cheap,  any  more  than  we  behold 
rivers  flowing  back  to  their  sources.  Therefore  a  counter-current 
of  irresistible  force  will  be  set  up,  which  will  bear  foreign  goods 
into  France.  For  whilst  the  rise  in  prices  in  France  will  compel 
foreigners  to  discontinue  their  purchases,  that  very  rise  in  prices, 
coinciding  with  the  fall  in  prices  abroad,  will  induce  many  French- 
men to  make  their  purchases  in  other  countries. 

Again,  the  currency  of  a  country  has  not  usually  circulating 
power  in  other  countries  ;  it  must  therefore  be  reminted.  In  any 
case,  it  must  be  transported,  and  consequently  must  be  insured 
against  risk.  All  this  means  difficulties  and  expenses  which  will 
doubtless  tend  to  diminish  in  consequence  of  the  facilities  of  com- 
munication, but  none  the  less  they  are  difficulties  and  expenses. 

Thus  it  was  that  several  centuries  ago  business  men,  and  in 
particular  the  races  who  possessed  the  true  commercial  genius, 
namely  the  Jews  and  the  Lombards,  taxed  their  ingenuity  to 
discover  means  of  settling  the  exchanges  between  different  coun- 
tries without  sending  coin ;  and  they  invented  admirable  instru- 
ments of  credit  which  perfectly  fulfil  the  desired  conditions. 

Thus  every  time  that  a  country  sends  goods  abroad,  it  must 
expect  to  receive  in  return  from  abroad  goods  of  an  equal  value  ; 
and  if  by  prohibitive  measures  it  renders  this  payment  in  kind 
impossible,  it  must  look  forward  to  the  current  of  its  exportations 
being  dried  up  in  consequence  of  those  very  measures.  We  may 
therefore  formulate  this  general  law  of  international  trade,  "  every 
exportation,  when  it  takes  the  shape  of  a  regular  current,  neces- 
sarily provokes  and  determines  a  corresponding  importation." 


240  PRINCIPLES    OF    POLITICAL    ECONOMY. 

But  the  converse  of  the  law  equally  holds  good  :  every  importa- 
tion, too,  provided  that  it  be  repeated  and  regular,  provokes  and 
determines  a  correspotiding  exportation.  In  fact,  a  purchasing 
country  cannot  always  pay  in  money  (unless  it  produces  one  of 
these  precious  metals  in  its  own  mines,  in  which  case  that  precious 
tnetal  becomes  an  article  to  export,  just  like  any  other  com- 
modity). From  the  moment  that  it  has  no  more  money,  it  will 
be  obliged,  if  the  importation  still  continues,  to  pay  for  it  in  goods  ; 
however,  long  before  that  moment  has  been  reached,  the  fall  in 
prices  would  have  stopped  purchases  made  abroad  by  its  subjects 
and  would  have  induced  foreigners  to  come  and  buy  from  it.  It 
is  the  same  reasoning  as  above,  with  the  parts  reversed.  The 
current  of  money,  then,  will  never  persist  in  flowing  in  the  same 
direction ;  like  a  tide  of  the  sea  it  will  sooner  or  later  turn,  and 
after  having  borne  money  away,  will  change  and  bring  it  back. 

To  reverse  the  current,  a  variation  in  prices  will  not  always  be 
necessary ;  a  mere  variation  in  the  rate  of  exchange,  which  gener- 
ally passes  entirely  unperceived  by  the  public,  will  usually  be  suffi- 
cient to  induce  the  turn.    (See  below,  "The  Rate  of  Exchange.") 

Every-day  experience  confirms  this  law.  A  country  has  never 
been  despoiled  of  its  money  by  the  working  of  its  international 
trade,  whereas  many  have  suffered  thus  from  the  working  of 
Grcsham's  Law.  On  the  other  hand,  each  time  that  a  treaty  of 
commerce  or  any  other  cause  has  considerably  increased  a  coun- 
try's imports,  its  exports  have  never  failed  to  increase  in  like 
proportions.  Thus  when  in  i860  France  threw  open  her  ports  to 
foreign  products,  her  imports  rose  from  2,521,000,000  francs  (the 
average  of  the  five  years  1855-1860)  to  3,231,000,000  .  (the 
average  of  the  five  years  1 861-1865)  ;  but  her  exports  likewise 
rose  in  equal  proportion,  between  the  one  period  and  the  other, 
from  2,813,000,000  to  3,449,000,000.  Thus  the  increase  in  im- 
ports was  23  per  cent,  in  exports,  28  per  cent. 


*     PRODUCTION.  241 

III.    What  is  meant  by  the  Balance  of  Trade; 

Since  all  international  trade  tends  to  take  the  shape  of  barter, 
wc  seem  to  be  justified  in  drawing  the  conclusion  that  in  the  trade 
of  any  country  exports  and  imports  should  almost  exactly  balance. 
Such,  however,  is  not  the  case ;  if  we  study  the  statistics  of 
exports  and  imports,  which  in  nearly  all  countries  are  drawn  up 
with  sufficient  accuracy,  we  see  that  this  equality  scarcely  ever 
exists.  The  balance  of  trade  (that  is  the  orthodox  phrase)  leans 
sometimes  to  the  side  of  imports  and  sometimes  to  that  of  ex- 
ports, the  former  being  the  most  frequent. 

Let  us  take  France  as  an  example.  Here  are  the  figures  of  her 
trade  {special  trade)  ^  for  the  last  five  years,  in  millions  of  francs. 

Years.  Imports.  Exports. 

1885 40S8  3088 

1886 4208  3249 

1887 4026  3246 

1888 4107  3247 

1889 4316  3704 

Totals 20745  16534 

The  above  figures  show  that  during  a  period  of  only  five  years 
France  bought  from  abroad  4,000,000,000  francs'  worth  of  goods 
more  than  she  sold ;  in  other  words,  the  annual  excess  of  imports 
over  exports  was  more  than  800,000,000  francs  (^32,000,000 
sterling). 

Does  this  contradict  the  law  we  have  just  laid  down  ?  Is  France 
obliged  to  pay  out  ^32,000,000  of  money  or  so  every  year?  That 
is  not  probable,  for  the  most  superficial  observation  shows  that 
the  quantity  of  money  in  circulation  dpes  not  appear  to  have 
appreciably  diminished.  Nay,  more  ;  it  has  increased.  For  the 
custom  house,  besides  registering  the  exports  and  imports  of 
goods,  also  enters  the  comings  and  goings  of  the  precious  metals. 
No  doubt  these  custom-house  records  are  not  perfectly  accurate, 

^  i.e.  not  including  re-exported  imports,  but  only  imports  retained  for  home 
consumption. — J.  B. 


242  PRINCIPLES    OF    POLITICAD>  ECOKOMV. 

for  they  do  not  reckon,  for  instance,  the  money  which  travellers 
carry  on  their  persons.  But  as  the  omissions  must  be  practically 
the  same  for  comings  and  goings,  the  relation  between  the  two 
columns  should  not  be  sensibly  altered. 

Here  are  the  figures  relating  to  the  precious  metals,  for  the 
same  period  of  years,  in  millions  of  francs  :  — 

Years.  Comings.  Goings. 

1885 479  339 

1886 445  333 

1887 271  397 

1888 266  301 

1889 J48  233 

Totals 1909  1603 

Thus,  during  the  same  period,  the  metallic  stock  of  France  has 
increased  by  300,000,000  of  francs  —  an  average  of  60,000,000 
francs  a  year. 

Were  we  to  take  England,  the  figures  would  be  still  more  sur- 
prising. The  annual  excess  of  imports  over  exports  reaches,  on 
an  average,  the  sum  of  ;^i  60,000,000 ;  in  other  words,  one  year 
would  be  enough  to  drain  England  of  her  money,  down  to  the 
last  penny,  for  her  cash  does  not  exceed  that  figure.  But  such 
does  not  occur.  On  the  contrary,  just  as  in  France,  the  comings 
of  money  usually  exceed  the  goings. 

What,  then,  is  the  key  to  the  enigma  ?  Only  this :  To  tell 
whether  the  foreign  trade  of  a  country  is  in  equilibrium,  we  must 
not  only  consider  the  balance  of  its  imports  and  exports,  as  we 
supposed  in  the  preceding  chapter,  but  we  must  study  the  balance 
of  7vhai  is  due  to  it  and  due  by  it.  The  balance  of  accounts  now 
will  not  be  the  same  as  the  balance  of  trade,  for  though  expor- 
tation is  one  way  and  the  chief  way  of  putting  the  foreigner  in 
our  debt,  still  there  are  others.  Similarly,  though  imports  con- 
stitute a  debt  which  the  country  owes  to  foreigners,  it  is  not  the 
only  one.  What,  then,  are  these  international  claims  or  debts, 
which  are  distinct  from  exports  and  imports?  There  are  many 
of  them,  but  three  stand  out  iiromincntly. 


PRODUCTION.  243 

Firstly,  the  cost  of  transport  of  exported  goods ;  that  is  to 
say,  freight  and  insurance.  If  the  exporting  country  itself  carried 
its  own  goods,  it  then  holds  a  claim  on  other  countries,  which 
certainly  will  not  be  counted  among  the  exports,  for  it  only  arises 
after  the  commodity  has  left  the  home  port,  and  is  on  the  way  to 
its  destination.  Under  this  head  a  country  like  England  has  an 
enormous  claim  on  other  countries,  which  is  reckoned  to  amount 
to  _;^48, 000,000  sterling  ;  ^  for  not  only  does  she  carry  all  her  own 
goods,  but  she  also  carries  the  greatest  part  of  the  goods  of  other 
countries,  and  naturally  does  not  do  this  for  nothing.  France,  on 
the  other  hand,  incurs  a  debt  under  this  head,  for  in  her  own 
ships  she  scarcely  carries  more  than  half  her  exports  and  a  third 
of  her  imports. 

This  excess  which  the  cost  of  carriage  places  on  the  value  of 
goods  explains  the  following  fact,  which  at  first  sight  appears  to  be 
inexplicable.  If  we  sum  up  the  total  of  the  exports  and  of  the 
imports  of  all  the  countries  of  the  world,  we  find  a  considerable 
excess  of  imports  over  exports.  Thus,  during  the  last  few  years, 
the  total  value  of  the  imports  of  the  world  is  reckoned  to  be 
_;,^ 1, 7 20,000,000  or  ;^i, 760,000,000  sterling,  whereas  the  total 
value  of  exports  would  not  exceed  ;^i, 5 20,000,000  or  ;^i,56o,- 
000,000.  Now  if,  instead  of  comparing  the  values  of  the  entering 
and  leaving  goods,  we  compared  their  quantities,  it  is  clear  that 
the  two  amounts  would  be  equal ;  for  obviously,  through  the  length 
and  breadth  of  the  world,  there  could  not  be  more  imported  than 
exported  goods,  unless,  forsooth,  they  bred  on  the  way.  As,  on 
the  contrary,  there  are  some  that  are  left  on  the  journey,  in  con- 
sequence of  shipwrecks,  it  is  clear  that  the  goods  which  arrive 
should  be  of  slightly  smaller  amount  than  those  which  are  sent. 
But  as,  instead  of  considering  quantities,  we  consider  values,  and 
as  these  values  are  heightened  on  the  way,  just  because  of  the 
cost  of  conveyance,  it  is  not  surprising  that  the  imported  goods, 

1  Sir  T.  H.  Farrer  says  ^^50,000,000  {^Free  Trade  versus  Fair  Trade, 
4th  edition,  18S7,  1.  7  of  p.  122).  These,  as  Mr.  Giffen  says,  are  the  "  invisi- 
ble exports."  — J.  B. 


244  PRINCIPLES    OF    POLITICAL    ECONOMY, 

that  is  to  say,  those  that  reach  their  destination,  stand  for  a  higher 
value  than  the  exported  goods,  that  is  to  say,  those  reckoned  from 
their  starting  points. 

Secondly^  the  interest  on  capital  invested  abroad.  Rich  coun- 
tries invest  abroad  a  large  part  of  their  savings,  and  for  this  reason 
draw  from  abroad  annually  very  considerable  sums  in  the  shape 
of  stock  coupons,  shares,  and  debentures,  or  even  in  the  form  of 
farm  rents  or  profits  on  industrial  or  commercial  undertakings. 
^So,ooo,ooo  sterling  is  reckoned  to  be  the  amount  of  the 
tribute  that  England  levies  under  this  head  from  foreign  countries 
or  from  her  own  colonies.  Not  only  have  India  and  the  Aus- 
tralian colonies  negotiated  almost  the  sum  total  of  their  loans  on 
the  London  Exchange,  but  how  innumerable  are  the  businesses 
that  Englishmen  direct  or  command  all  over  the  world  !  In  the 
United  States  they  are  said  to  have  acquired  lands  whose  area  is 
estimated  to  be  20,000,000  acres,  —  the  area  of  Ireland.  "France, 
too,  has  considerable  claims  abroad,  chiefly  in  Europe.  The 
interest  accruing  from  them  cannot  be  much  less  than  ^^40,000,- 
000  a  year. 

Spain,  Turkey,  India,  Egypt,  the  South  American  Republics,  on 
the  other  hand,  figure  as  debtors  under  this  item.  But  it  shoukl 
be  observed  that  when  these  countries  issue  a  loan,  and  so  long  as 
this  loan  is  not  fully  subscribed,  they  become  for  the  time  credi- 
tors of  the  countries  who  are  sending  them  funds. 

Thirdly,  the  expenses  incurred  by  foreigners  living  in  the  par- 
ticular country.  As  the  money  spent  by  these  strangers  is  not  the 
product  of  their  labor,  but  is  drawn  from  their  estates  or  from 
capital  invested  in  their  native  land,  all  countries  which  are  resorted 
to  by  wealthy  foreigners  receive  a  constant  current  of  claims. 
In  this  respect  France,  Italy,  Switzerland,  Algeria,  are  creditors 
for  considerable  amounts  of  England,  Russia,  and  the  United 
States.  Let  there  be  in  Paris  a  floating  population  of  50,000 
foreigners,  spending  only  a  pound  a  day ;  to  pay  their  expenses 
they  must  draw  from  the  country  of  their  origin  an  annual  sum  of 
^18,250,000.     It  is  like  a  bill  for  tlicir  boarding  expenses.     (See 


PRODUCTION.  245 

farther  on,  "The  Expenditure  of  Foreigners.")  In  all  France 
there  are  reckoned  to  be  more  than  1,100,000  foreigners,  but 
naturally  an  enormous  majority  of  tlicm  come  only  to  gain  money, 
not  to  live  on  their  incomes.  It  is  only  the  latter  that  we  are 
now  speaking  of. 

Some  other  kinds  of  claims  and  debts  might  still  be  mentioned ; 
for  example  :  — 

Firstly,  barikers'  coinmissions,  when  they  extend  their  opera- 
tions abroad.  Exchanges,  like  that  of  London,  and  even  the  Paris 
Bourse,  receive  orders  and  execute  operations  for  all  countries. 
As  this  is  not  done  gratuitously,  they  are  creditors  under  this  head 
for  considerable  sums. 

Secondly,  the  sale  of  vessels.  Ships  bought  do  not  figure  on  the 
custom-house  books,  either  as  exports  or  imports.  Now  England, 
who  builds  ships  for  the  whole  world,  in  this  item,  too,  is  a  credi- 
tor for  a  rather  large  amount,  and  so  the  sum  due  to  France,  also, 
though  much  smaller,  is  by  no  means  to  be  neglected. 

Still  we  must  be  careful  not  to  reckon  in  these  claims  the  profits 
of  exporters.  For  these  profits  are  already  included  in  the  value 
of  the  exports,  since  this  value  is  fixed  by  a  commission  called 
the  commission  on  values,  according  to  the  selling  prices  entered 
on  the  invoices. 

The  three  classes  first  referred  to  are  the  principal  claims. 
They  are  enough  to  restore  the  balance  and  to  explain  our  enigma 
of  a  page  or  two  back.  Take  the  case  of  France  :  if  we  enter  to 
her  credit  in  the  first  place  ;^i  20,000,000  of  exports,  then 
;^40,ooo,ooo  interest  on  capital  invested  abroad,  and  lastly 
;^ 1 8,000,000  of  expenses  incurred  by  foreigners ;  and  if  we  enter 
to  her  debit,  firstly,  ;^  160,000,000  of  imports,  and  then  a  iQ.\^ 
score  of  millions  for  the  transport  of  the  portion  of  these  goods 
that  sail  under  a  foreign  flag,  we  shall  see  that  the  desired  equi- 
librium is  virtually  found  and  that  there  is  even  a  slight  balance 
to  France's  credit.  The  same  calculation  could  be  gone  through 
in  the  case  of  England. 

The  foreign  trade  of  a  country,  then,  is  in  equiUbrium,  not 


246  TRINCIPLES    OF    POLITICAL    ECONOMY. 

precisely  when  there  is  equahty  between  its  exports  and  its  im- 
ports, for  that  never  hajjpens,  but  when  there  is  equaUty  between 
its  claims  and  its  debts. ^ 

If  this  equilibrium  is  disturbed,  it  tends  to  be  restored  through 
the  working  of  that  law  we  studied  in  the  preceding  chapter. 
Just  as  we  declared  that  every  new  exportation  of  goods  induced 
a  countercurrent  of  imports,  so  too,  we  must  say  that  "  every 
new  claim  on  a  foreign  country  tends  to  cause  importation  from 
that  country."  Again,  just  as  each  regular  importation  causes  a 
corresponding  flow  of  exports,  so,  too,  "  every  debt  contracted  with 
a  foreign  country  tends  to  cause  a  flow  of  exports  into  that  country." 

The  reasons  for  these  phenomena  —  to  wit,  variations  in  prices 
or  merely  in  the  rate  of  exchange  —  are  absolutely  identical  with 
those  which  tend  to  reverse  the  proportion  between  exports  and 
imports. 

IV.    Wherein  lie  the  Advantages  of  International  Trade, 

In  international  just  as  in  all  other  exchange  an  equal  value  is 
given  for  an  equal  value.  Where,  then,  is  the  advantage  of  ex- 
change? The  advantage  is  exactly  that  which  we  pointed  out 
when  studying  exchange  between  individuals.  Why,  indeed, 
should  it  be  different  ?  for  it  rests  merely  in  an  economy  of  labor. 

Let  us  suppose  that  in  France  the  production  of  a  hundred 
weight  of  com  requires  six  days'  labor,  whilst  in  America  it 
requires  only  three  ;  in  that  case,  France,  instead  of  directly  pro- 
ducing her  own  corn,  will  find  it  to  her  advantage  to  obtain  for 
herself  American  corn,  by  giving  in  exchange  an  equivalent  value, 
that  is  to  say,  an  article  which  will  have  cost  her,  too,  only  three 
days'  labor ;  in  this  manner,  she  will  economize  three  days'  labor 
for  every  hundredweight  imported.  In  other  words,  she  will 
obtain  the  same  satisfaction  as  previously  for  half  the  effort.  In 
this,  as  we  have  already  seen,  lies   the   essential  advantage  of 

1  The  various  items  in  the  reckoning  are  given  in  Mr.  Goschen's  book  on 
The  Foreign  Exchanges  (first  pubUshed  in  1861). —  J.  B. 


PRODUCTION.  247 

all  exchange.  It  is  not  otherwise  with  international  trade  or 
exchange. 

Now,  this  advantage  arising  from  international  trade  does  not 
necessarily  imply  any  inferiority  in  production  of  the  importing 
country,  though  that  is  most  usually  the  case.  It  may  be  to  a 
country's  interests  to  obtain  certain  goods  by  importation,  even 
though  it  may  be  capable  of  producing  them  under  more  favorable 
conditions  than  other  cou7itries  can.  This,  at  first  sight,  appears 
to  be  a  singular  circumstance  ;  yet  it  occurs  frequently  enough. 
Let  us  suppose  that  the  Antilles  could  produce  corn  under  more 
favorable  conditions  than  France  can,  —  say  a  hundredweight  in 
three  days  instead  of  six,  —  would  it  not  seem  to  be  to  their  clear 
advantage  to  produce  their  corn  directly,  and  that  it  would  be 
foolish  to  import  it  from  France  ?  Yet  it  is  very  possible  that  the 
Antilles  profit  by  the  transaction.  That  would  occur  if  we  were 
only  to  suppose  that  they  are  able  to  pay  for  the  corn  they 
obtain  from  France  by  a  product  they  can  produce  under  still 
more  favorable  conditions  than  they  can  com,  —  say  by  sugar, 
which  will  cost  only  otie  day's  labor.  This  transaction  will  evi- 
dently be  extremely  advantageous  to  them,  for  it  will  give  them 
the  same  quantity  of  com  for  a  third  of  the  labor. 

A  country,  then,  might  be  superior  to  its  neighbors  on  all  points, 
and  yet  find  it  to  its  interest  to  import  their  products.  Even  in 
that  case,  it  would  find  it  best  to  devote  itself  to  the  production 
of  articles  in  which  its  superiority  is  the  most  marked,  and  to  offer 
them  to  its  less  favored  neighbors,  so  as  to  obtain  in  exchange 
products  in  which  its  superiority,  though  actual  enough,  is  less 
clearly  marked. 

It  is  obvious  that  the  advantages  just  referred  to  may  well 
enough  be  reciprocal,  and  indeed  ought  to  be  so,  other  things 
being  equal.  For  in  every  exchange,  each  party  only  agrees  to 
the  exchange  in  so  far  as  he  knows  or  believes  that  he  will  obtain 
some  advantage  in  so  doing,  i.e.  that  he  will  either  be  saved  a 
certain  amount  of  labor,  or  will  obtain  an  article  which  is  useful  to 
him  in  exchange  for  one  which  is  relatively  useless.     But  though 


248  PRINCIPLES    OF    POLITICAL    ECONOMY. 

we  can  hold  it  for  certain  that  each  party  reaps  some  advantage 
from  the  change,  we  are  by  no  means  justified  in  affirming  that 
the  respective  advantage  gained  on  each  side  is  equal;  that  is 
scarcely  probable. 

No  one  would  dream  of  denying  the  above  advantages,  were 
international  trade  seen  by  all  eyes  in  its  true  light ;  that  is  to  say, 
as  barter,  commodity  for  commodity.  No  one,  then,  would  hesi- 
tate in  agreeing  that  it  is  in  importation  rather  than  in  exporta- 
tion, in  the  article  received  rather  than  in  the  article  yielded  up, 
that  the  real  advantage  of  international  trade  must  be  sought. 
For  in  the  exchange  of  objects  in  their  actual  physical  state,  does 
not  each  party  consider  the  object  to  be  acquired  as  the  real  aim 
of  the  operation,  and  the  object  given  up  as  a  mere  means  of 
acquiring? 

Unfortunately,  to  the  vulgar  eye  international  trade  is  not  seen 
in  its  true  shape  of  barter  ;  people  only  see  sales  made  abroad  on 
the  one  hand,  and  purchases  made  abroad  on  the  other  hand,  and 
never  dream  of  establishing  any  inevitable  connection  between 
the  two  classes  of  transactions.  From  this  blindness  arise  most  of 
the  difficulties  that  beset  this  question. 

V.  Why  the  Advantages  of  International  Trade  should  be 
measured  neither  by  the  Excess  in  Imports  nor  by 
the  Excess  in  Exports. 

Such  being  the  advantages  of  international  trade,  we  must  be- 
ware of  the  common  error  of  desiring  to  measure  the  profits  of 
international  trade,  either  by  the  excess  of  exports  over  imports, 
which  is  the  protectionist  theory,  or  by  the  excess  of  imports  over 
exports,  which  is  the  free-trade  theory.  Both  these  ways  of  valu- 
ing the  advantages  of  international  trade  rest  alike  on  an  analogy 
which  we  have  shown  to  be  inaccurate,  namely,  the  likening  of  the 
position  of  a  great  country  to  that  of  a  business  man. 

According  to  the  first  theory,  here  is  a  London  merchant  who 
buys  tea  in  China,  to  sell  it  again  in  France  ;  the  tea  he  imports 


PRODUCTION.  249 

is  valued  at  ;^4000 ;  the  same  tea,  when  exported,  is  valued  at 
;^6ooo.  His  profits,  then,  are  measured  by  the  excess  of  the 
selling  price  over  the  cost  price,  therefore  by  the  superiority  of 
exportation  to  importation. 

According  to  the  second  theory,  here  is  a  London  merchant 
who  sends  to  the  Gold  Coast  a  general  cargo  of  goods,  which  are 
worth  p^400o.  These  he  exchanges  there  for  a  cargo  of  ivory  and 
gold  dust,  which  on  reaching  London  is  worth  ;,^20,ooo ;  his 
profits  are  measured  by  the  excess  in  value  of  the  imported  over 
the  exported  gqods ;  therefore  by  the  superiority  of  importation  to 
exportation. 

Both  of  these  conclusions  are  based  on  the  particular  circum- 
stances to  which  they  apply,  and  are  ahke  false  when  an  attempt 
is  made  to  generalize  them  and  to  extend  them  to  the  whole 
trade  of  a  country.  For  a  great  country  is  not  a  trader ;  it  has 
other  functions  besides  buying  to  sell  again,  or  selling  to  buy 
again.  No  doubt  these  various  operations  might  be  sources  of 
profit  for  certain  classes  of  business  men  and  consequently  for  the 
nations  of  which  they  form  a  portion ;  and  they  have  been  prac- 
tised on  a  large  scale  by  Tyre  and  Carthage  in  old  days,  by  the 
Hanse  towns  and  the  Netherland  cities  in  the  Middle  Ages,  and 
by  England  in  our  own  day.  But  for  a  great  country  viewed  as 
a  whole,  the  object  of  trade  is  not  to  make  money,  but  to  satisfy 
those  of  its  wants  that  it  cannot  satisfy  directly.  If  it  is  to  be 
compared  with  a  private  person,  it  should  be  likened,  as  we 
have  shown,  to  a  landowner,  who  does  not  buy  to  sell  again  or  sell 
to  buy  again,  but"  who  buys  what  he  needs  for  consumption,  and 
sells  his  surplus  stock. 

If  we  take  the  case  of  France,  the  fact  that  her  purchases 
amount  to  about  ;^i  60,000,000,  while  what  she  sells  scarcely 
reach  the  figure  of  ;^i  20,000,000,  by  no  means  justifies  us  in 
concluding  that  she  has  gained  this  difference  of  ^^40,000,000, 
nor  less  still  that  she  has  lost  it.  Similarly,  when  we  see  the 
United  States  exporting  yearly  ;^2  8,000,000  or  ^30,000,000 
worth  of  goods  more  than  they  import,  we  must  not  conclude  that 


250  PRINCIPLES    OF    POLITICAL    ECONOMY. 

they  have  gained  this  sum,  far  less  that  they  have  lost  it.  In  real- 
ity, as  we  have  seen  above,  in  exchange  for  these  ^^  160,000,000 
worth  of  goods  France  has  given  ^120,000,000  worth  of  goods, 
besides  another  ^40,000,000  represented  by  bills  that  she  holds 
abroad.  Thus  she  has  given  equal  value  for  equal  value ;  in  the 
drawing  of  the  balance-sheet  of  these  transactions  we  must  not 
attempt  to  find  either  a  loss  or  a  gain  that  can  be  valued  in  figures, 
but  we  must  look  to  the  far  more  important  economic  advantages 
which  we  have  referred  to  in  the  preceding  section. 

What  an  extraordinary  idea  it  is  to  measure  the  benefits  of 
exchange  and  of  trade,  whether  between  countries  or  between 
private  persons,  by  the  profits  of  business  men  !  People  fail  to 
observe  that  the  profits  business  men  draw  from  these  transactions 
are,  in  fact,  a  charge  both  for  producers  and  for  consumers,  a 
legitimate  charge  when  it  corresponds  to  a  service  rendered,  but 
which,  nevertheless,  must  be  dediicted  from  the  advantages  of 
exchange.  Did  business  men  make  no  profits  at  all,  exchange 
would  be  none  the  less  beneficial ;  nay,  it  would  be  even  more  so. 
No  doubt,  under  present  circumstances  such  a  state  of  things 
would  be  impossible,  but  that  is  quite  another  question.  As 
Cairnes  has  admirably  said,  "  It  would  be  just  as  reasonable  to 
represent  the  advantages  of  learning  as  measured  by  the  salaries 
of  teachers."  —  Leading  Principles,  III,  v,  page  502. 

VI.    How  it  happens  that  International  Trade  necessarily 
harms  Certain  Interests. 

It  must  not  be  inferred  from  the  above  discussion  that  inter- 
national trade  is  beneficial  to  every  one.  That  would  be  to  mis- 
understand its  effects.  It  follows,  indeed,  from  our  explanation 
of  the  effects  of  international  trade  that  the  aim  and  result  of  this 
method  of  exchange  are  to  economize  a  certain  amount  of  labor. 
But  given  our  present  societies  which  are  based  on  division  of 
labor,  and  it  will  be  seen  that  a  certain  quantity  of  labor  cannot 
be  economized  without  rendering  useless  a  certain  class  of  laborers 


PRODUCTION.  251 

(see  below,  "The  Disadvantages  necessarily  involved  in  All  Progress 
in  Production  ") .  The  China  trade  is  an  advantage  for  French  con- 
sumers and  for  the  country  in  general,  since  it  enables  them  to  obtain 
silks  at  a  smaller  cost  and  for  less  labor,  but  the  mulberry-tree  grow- 
ers and  silk  spinners  of  the  Cevennes,  who  used  to  earn  their  liveli- 
hood by  this  industry,  are  to  some  extent  becoming  expropriated. 

It  is  true  enough,  as  we  showed  in  a  recent  section,  that  every 
new  importation  induces  a  corresponding  counter-current  of  ex- 
portation, and  that  Chinese  silk,  for  example,  will  be  paid  for  with 
Parisian  articles,  which  must  be  produced  for  that  purpose.  But 
we  must  not  forget  that  silks  imported  from  China  obviously  stand 
for  a  lower  value  than  the  French  silks,  which  they  have  replaced 
as  articles  of  consumption  ;  were  not  that  the  case,  they  could 
not  have  supplanted  them  in  the  market.  Say  that  the  value  of 
China  silk  imported  is  only  ;^  1,000,000,  whilst  the  products  of 
French  silk-worm  culture  were  at  least  ;^i, 600,000.  To  balance 
this  flow  of  imports  by  an  equivalent  counter-current  of  exports,  it 
will  be  enough  for  Parisian  industry  to  send  to  China  ^1,000,000 
worth  of  Parisian  articles.  The  final  result,  therefore,  is  a  diminu- 
tion of  home  production  by  ;^6oo,ooo,  and  a  corresponding  dimi- 
nution in  labor. 

Were  no  other  effect  produced  than  a  displacement  of  labor, 
for  that  is  obvious,  none  the  less,  grave  injury  would  be  done  to 
certain  classes  of  the  people.  For  the  silk  manufacturers  of  the 
Cevennes,  being  unable  to  turn  their  spinning-mills  into  manu- 
factories of  Paris  goods,  will  have  to  lose  all  the  capital  they  have 
sunk  in  their  works ;  and  as  the  spinners  whom  they  employ  will 
be  equally  unable  to  go  and  make  knick-knacks  for  the  Chinese, 
it  is  not  certain  whether  they  will  find  another  trade.  Thus  the 
employers  are  ruined,  the  employed  are  thrown  out  of  work  and 
plunged  into  poverty. 

A  few  attenuating  circumstances  can  be  set  on  the  other  side. 
We  may  say  that  international  trade,  just  as  machinery,  will  be 
able,  by  its  indirect  consequences,  to  increase  the  amount  of  labor 
which  it  had  begun  by  diminishing.  This  will  be  effected  in  twa 
different  ways. 


252  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Firstly.  Because  the  lowering  of  prices  resulting  in  Free  Trade 
will  bring  along  with  it  an  increase  in  consumption,  and  conse- 
quently an  increase  in  production.  Thus  the  fall  in  the  price  of 
silks  will  increase  the  consumption  of  them.  Even  admitting  that 
this  increased  demand  will  affect  only  Chinese,  and  not  French, 
silks,  nevertheless,  to  pay  for  this  larger  bulk  of  imports,  there 
must  be  a  corresponding  increase  in  the  amount  of  exported 
Paris  goods,  the  value  of  which  will  be  not  merely  ;^i, 000,000,  as 
in  the  previous  case,  but  perhaps  even  p^i, 600,000  (the  value 
of  the  French  silk  industry) . 

Secojidly.  Because  the  lowering  of  prices,  by  diminishing  the 
expenditure  of  consumers  of  any  particular  article,  may  enable 
them  to  lay  out  the  resulting  saving  in  other  expenditure,  or 
perhaps  to  invest  it.  Consequently  all  that  is  taken  away  from 
labor  by  one  road  may,  by  another  road,  in  the  shape  of  savings 
or  new  expenditure,  go  to  feed  other  branches  of  industry ;  and 
it  is  possible  that  in  the  long  run  the  national  labor  may  not  have 
been  diminished  at  all. 


THE  QUESTION   OF  FREE  TRADE  AND  PROTECTION. 

I.    Why  the  Question  of  Free  Trade  Is  a  Question. 

There  is  no  subject  in  political  economy,  hardly,  perhaps,  in 
any  sphere,  which  has  stirred  up  more  controversies,  caused  the 
writing  of  more  volumes,  nay,  even  occasioned  the  firing  of  more 
cannon-balls,  than  the  question  of  international  trade. 

But  why  ?  Is  not  the  trade  between  country  and  country  simi- 
lar on  all  points  to  trade  between  individual  and  individual  ?  Is 
it  not,  like  private  trade,  an  ordinary  and  normal  form  of  exchange  ? 
What,  then,  is  the  use  of  a  special  theory  for  international  trade  ? 
If  exchange  is  in  itself  a  good  thing,  how  comes  it  that  it  may 
present  certain  dangers  in  consequence  of  the  wholly  extrinsic 
circumstance  that  the  two  exchangers  are  separated  one  from 
the  other  by  the  flag-post  that  marks  a  frontier? 


PRODUCTION,  253 

That  is  how  poHtical  economy  regards  the  matter.  It  does  not 
admit  and  does  not  understand  that  international  trade  can  be 
subject  to  other  rules  than  those  which  rule  each  particular  branch 
of  trade.  For  political  economy  the  celebrated  question  enun- 
ciated above  is  not  a  question  at  all,  and  ought  to  be  struck  out 
from  the  list  of  our  subjects  of  study.  Exchange  is  a  form  of 
that  division  of  labor,  the  wonderful  effects  of  which  we  have 
already  explained,  and  its  utility  is  absolutely  independent  of  the 
circumstance  whether  the  exchangers  belong  to  the  same  country 
or  to  different  countries.  Political  economy  was  still  in  its  first 
youth,  under  the  fostering  care  of  the  physiocrats  and  of  Adam 
Smith,  when  it  uttered  the  formula,  " Laissez /aire,  laissez passer" ; 
that  is  to  say,  its  first  cry  was  a  free-trade  declaration.  And  since 
then,  in  spite  of  a  few  hesitations,  and  even  some  expressions  of 
dissent,  it  may  be  said  to  have  remained  faithful  to  its  old  motto. 

But  political  economy  has  not  succeeded  in  convincing  either 
legislators  or  peoples.  At  one  time  (about  thirty  years  ago)  its 
cause  appeared  to  have  been  won.  England  had  then  adopted 
free-trade  opinions,  and  France,  following  her  lead,  had  drawn 
successively  into  the  same  path  nearly  all  the  European  nations. 
But  that  conversion,  which  seemed  to  be  a  final  one,  was  of  but 
short  duration.  The  reaction  was  as  sudden  as  it  was  violent, 
and  at  the  present  day,  of  all  the  countries  of  the  civilized  world, 
there  are  only  two,  England  and  Belgium,  which  have  remained 
faithful  to  Free  Trade. ^ 

This  question,  in  truth,  is  of  old  standing ;  yet  it  was  scarcely 
till  the  seventeenth  century  that  controversies  over  it  began  to 
rage.  It  is  obvious  that  certain  conditions  were  requisite  to  pro- 
duce its  origin  which  could  not  be  fulfilled  till  modern  times. 

Firstly.  The  first  requisite  was  the  rise  of  great  States,  which, 
by  the  extent  of  their  territory  and  the  bulk  of  their  population, 
were  able  to  produce  all  that  they  needed,  in  fact,  which  became 
self-sufficient.    Merchant  cities,  such  as  Tyre  and  Carthage,  Venice, 

1  Swit2:erland  and  Holland  might  be  added.  —  J.  B, 


254  PRINCIPLES    OF    POLITICAL    ECONOMY. 

or  the  Hanse  towns,  or  the  cities  of  the  Netherlands,  could  lay 
claim  to  no  such  ability. 

Secondly.  The  other  determining  condition  was  a  sufficient 
development  of  the  means  of  transport  for  competition  to  become 
a  matter  of  danger,  in  the  production  of  articles  of  large  consump- 
tion, such  as  agricultural  products.  When  trade  merely  carried 
in  caravans  or  in  small  galleys  articles  of  luxury,  such  as  Tyrian 
purple,  Venetian  brocades,  Toledo  blades,  there  was  no  reason  to 
think  about  protecting  national  industries.  But  it  is  clear  that 
such  a  question  might  become  one  of  urgency,  as  soon  as,  from 
one  end  of  the  earth  to  the  other,  trade  carried  whole  mountains 
of  corn,  flocks  of  sheep,  shiploads  of  cotton  stuff  and  of  cloth  to 
feed  and  clothe  a  whole  people. 

An  account  of  the  history  of  the  protectionist  system  would  be 
out  of  place  in  this  book ;  here  we  need  only  call  to  mind  the  most 
memorable  dates. 

It  was  in  the  year  1846  that  free  trade  was  adopted  in  England 
by  the  abolition  of  the  Corn  Laws,  after  the  heroic  campaign  led 
by  Cobden.  In  i860  Napoleon  III  inaugurated  the  same  policy 
in  France,  by  the  famous  Treaties  of  Commerce  with  England. 
From  that  date  it  looked  as  if  free-trade  doctrines  were  destined 
to  triumph  all  over  the  world.  But  the  United  States,  in  1867, 
after  the  conclusion  of  the  Civil  War,  and  Germany,  in  1S79,  under 
the  influence  of  Prince  Bismarck,  adopted  exceedingly  protec- 
tionist laws,  and  other  countries,  in  their  turn,  executed  a  right- 
about-face movement.  In  18S1  France  reconstructed  her  general 
customs  tariff  on  a  more  restrictive  basis  ;  in  1882  she  refused  to 
renew  her  treaties  of  commerce  with  England;  in  1887  she  bur- 
dened foreign  corn  with  a  duty,  first  of  half-a-crown,  and  then  of 
four  shillings  on  every  two  hundredweight.  In  1891  she  is  about 
to  abandon  all  the  commercial  treaties  which  unite  her  to  the  rest 
of  the  world. 

It  is  not  difficult  to  discover  the  reason  for  this  opposition 
between  theory  and  practice.  No  one  denies  that  Free  Trade  is 
the  system  that  is  preferable  from  the  theoretical  point  of  view, 


PRODUCTION.  255 

or  that  it  is  the  best  suited  to  the  general  good  of  mankind.  But 
nations  and  their  rulers  are  not  in  the  habit  of  speculating  on 
the  general  interests  of  the  human  race ;  they  only  busy  them- 
selves with  the  particular  interests  of  the  country  in  which  they 
live,  and  surely  they  cannot  be  reproached  with  criminality  for 
doing  so.  Now  they  judge,  whether  rightly  or  wrongly,  —  the 
whole  question  rests  on  that,  —  that  international  trade,  if  left  to 
itself,  might  tend  to  ruin  the  industry  of  a  country,  to  restrict  or 
even  to  stifle  its  productive  powers,  and  even  indirectly  endanger 
the  very  national  existence. 

Take,  for  instance,  the  importation  of  corn  from  America,  which 
no  longer  allows  French  cultivators  to  grow  corn  at  any  profit.  It 
may  be  the  same  with  butcher's  meat,  with  wine,  with  wool,  with 
silk.  Is  it  necessary,  then,  that  these  agriculturists,  who  form  one- 
half  of  the  whole  population  of  France,  should  abandon  the  land, 
to  swarm  into  the  towns  ?  What  dangers  may  not  be  incurred  by 
the  country  in  consequence  of  such  a  displacement  of  labor, — 
danger  not  only  economically,  but  from  the  point  of  view  of  public 
health,  of  morality,  of  political  stability,  of  military  strength,  of  the 
future  of  the  country  !  Moreover,  who  can  assure  us  that  those 
portions  of  the  populace,  when  once  driven  out  of  the  country 
districts,  will  find  more  remunerative  labor  in  the  towns.  Is  it  not 
possible  that  the  manufacturing  industry  may,  in  its  turn,  sink  under 
the  weight  of  foreign  importation?  If  a  country  is  unfortunate 
enough  to  be  inferior  to  certain  foreign  countries  in  all  branches  of 
production,  it  will  be  dislodged  in  succession  from  each  of  its  posi- 
tions, and  but  one  resource  will  be  left  to  it ;  namely,  to  transport 
its  people  and  all  its  remaining  capital  into  those  very  countries 
which  wage  against  it  the  victorious  competition,  in  order  to 
benefit  there,  at  least,  from  the  conditions  which  bring  about  that 
superiority.  If  France  can  no  longer  sustain  the  competition  of 
America,  she  must  transplant  herself  to  America  ! 

Such,  men  say,  is  the  logical  consequence  of  a  system  which 
regards  international  trade  merely  as  the  fittest  mode  of  organiza- 
tion for  reaping  the  most  possible  from  the  earth  and  the  men 


256  PRINCIPLES    OF    POLITICAL    ECONOMY. 

that  people  it,  without  troubUng  themselves  at  the  fact  that  these 
men  are  divided  into  nations,  and  that  each  one  of  these  nations 
has  the  right  and  the  will  to  hve. 

It  is  true,  they  add,  that  competition  within  the  country  itself 
and  home  trade  may  produce  the  same  effects  in  their  spheres. 
It  is  possible  that  the  liberty  and  the  facility  of  communication 
between  the  department  of  the  Cantal  and  Paris  may  involve  the 
depopulation  and  the  industrial  death  of  that  department ;  but  in 
this  case  one  portion  of  France  gains  what  another  part  loses; 
there  is  no  reason  for  interference  with  that.  But,  if  the  liberty 
and  facility  of  communication  between  America  and  France,  by 
a  like  law,  involve  the  depopulation  and  the  industrial  death  of 
France,  then  there  is  reason  to  interfere ;  and  that  not  only  in 
the  interests  of  the  country,  but  also  in  the  higher  interests  of 
civilization.  For,  after  all,  nations  have  another  part  to  play 
on  the  world's  stage  besides  that  of  mere  economic  producers, 
and  cheapness  should  not  be  the  only  sufficient  reason  for  their 
existence. 

II.    The  Protectionist  System. 

The  foregoing  is  an  exposition  of  the  dangers  to  be  feared ; 
what  is  the  practical  conclusion  ?  Are  we  altogether  to  do  away 
with  international  trade  ?  That,  indeed,  might  be  thought  to  be 
the  logical  conclusion  of  the  train  of  reasoning  set  forth  above. 
But  no ;  nothing  of  the  sort ;  protectionists  are  not  in  the  least 
enemies  to  international  trade.  At  any  rate,  that  is  their  boast ; 
and  they  prove  the  truth  of  this  claim  by  the  efforts  they  make  in 
discussing  it  among  themselves,  and,  if  need  be,  by  the  sacrifices 
they  consent  to  bear  for  the  purpose  of  binding  together  the  vari- 
ous countries  of  the  world  by  a  network  of  railroads  or  by  great 
maritime  routes.  The  only  thing  is,  that  they  regard  international 
trade  as  a  state  of  war,  as  one  of  the  forms  of  the  struggle  for 
existence  among  nations.  At  any  rate,  that  is  the  aspect  which 
matters  assume  in  our  days.  But  Montesquieu  had  not  foreseen 
such  a  situation  when  he  wrote,  "The  natural  effect  of  trade  is 
conducive  to  peace."  —  Esprit  des  Lois,  XX,  Chap.  2. 


PRODUCTION.  257 

Now,  just  as  the  art  of  war  consists  in  invading  and  occupying 
the  enemy's  territory  without  allowing  one's  own  land  to  be  in- 
vaded or  occupied,  so,  too,  the  system  of  tactics  of  international 
trade  ought  to  consist  in  inundating  the  enemy's  territory  with 
one's  own  exports  without  allowing  foreign  imports  to  enter  one's 
own  country.  What  is  necessary,  then,  is  to  establish  a  national 
industry  which  shall  be  vigorous  enough  to  be  capable  of  repelling 
foreign  products  and  also  of  competing  victoriously  against  these 
foreign  products  on  their  own  ground.  Such  is  the  problem  which 
has  been  posited  by  Protection  for  several  centuries,  and  the 
solution  of  which  is  attempted  by  means  of  a  whole  body  of  ex- 
tremely complicated  tactics. 

We  are  not  able  to  enter  here  into  the  details  of  this  system, 
which  has,  indeed,  varied  a  great  deal  in  its  main  lines,  but  the 
following  are  its  characteristic  features. 

As  to  exports,  first  of  all,  they  should  not  only  be  approved  of, 
but  should  be  sought  for  and  encouraged,  if  need  be,  by  bounties. 
Thus  Germany  and  several  other  countries  grant  bounties  on  exports 
of  sugar.  The  colonial  policy,  which  the  various  countries  of  Europe 
have  been  lately  following  with  such  mad  zeal,  had  no  other  object 
but  to  open  up  new  markets  and  consequently  to  favor  exports. 

Yet,  by  a  contradiction  which  appears  to  be  remarkable,  the 
protective  system  formerly  used  to  lay  heavy  duties  on  exports. 
These  were  justified  by  the  intention  of  retaining  in  the  country 
certain  articles  of  wealth  (such  as  raw  material,  corn,  etc.),  which 
seemed  to  be  essential  for  production  or  for  the  food-supply  of 
the  country.  Export  duties  are  now  no  longer  employed  except 
for  fiscal  purposes,  and  are  usually  on  articles  which  form  a 
monopoly  {e.g.  guano  in  Peru,  opium  in  India) . 

Exports,  then,  are  alleged  to  possess  nothing  but  advantages  : 

Firstly.  Because  they  obtain  for  the  country  the  profits  which 
result  from  every  act  of  sale  made  under  normal  conditions. 

Secondly.  Because  they  cause  coin  to  enter  the  country,  or  at 
any  rate,  render  the  country  a  creditor  of  foreign  lands,  which  is 
always  a  favorable  position. 


258  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Thirdly.  Because  they  extend  over  the  world  not  only  the 
commercial  relations  of  the  country,  but  also  its  political  power 
and  its  moral  influence.  To  sell  to  foreign  countries,  is  to  make 
clients  or  dependents  of  them,  not  only  literally,  but  figuratively. 

Imports,  on  the  other  hand,  present  numerous  dangers.  First 
of  all,  in  a  general  manner,  since  they  are  the  opposite  of  exports, 
which  are  beneficent,  they  must  be  harmful. 

Firstly.  Because  instead  of  enabling  us  to  make  a  profit  from 
dealings  with  foreigners,  they  allow  foreign  countries  to  profit  at 
our  expense. 

Secondly.  Because  instead  of  making  coin  come  in,  they  make 
it  go  out. 

Thirdly.  Because  instead  of  turning  foreigners  into  our  cus- 
tomers, they  make  us  the  clients  of  foreigners. 

Fourthly.  Above  all,  because  they  compete  with  national 
industries. 

It  is  necessary,  then,  if  not  to  reject  imports  altogether,  at  least 
only  to  admit  them  knowingly  (Cato  the  Elder  long  ago  gave 
the  same  advice  to  landowners  in  his  work  De  Agricultura, 
"  patrem-familias  vendacem,  non  emacem  esse  oportet."  That 
might  be  taken  as  the  motto  of  protectionists,  and  thus  the 
protective  system  has  been  led  to  draw  a  goodly  number  of 
distinctions) . 

As  regards  the  importation  of  exotic  products,  which  have  no 
equivalents  in  the  receiving  country,  because,  for  one  reason  or 
other,  it  is  unable  to  produce  them  (for  example,  coffee  or  choco- 
late in  France,  tea  or  wine  in  England),  protectionists  would  see 
no  difficulty  in  their  free  admission.  But  unfortunately,  as  financiers 
regard  them  as  excellent  taxable  matter,  these  products  do  not 
gain  much  from  this  kindness  of  the  protectionists.  Thus  Eng- 
land, which  is  altogether  free  trading,  levies  enormous  duties  on 
these  products  —  tea,  sugar,  coffee,  tobacco,  and  wines  —  which 
are  valued  at  no  less  than  ;^20,ooo,ooo ;  but  these  duties  are 
purely  in  the  interests  of  the  exchequer. 

When  duties  have  this  fiscal  character,  it  is  to  the  interest  of  the 


PRODUCTION.  259 

government  to  lower  them  as  far  as  possible,  in  order  to  develop 
the  importation  of  taxable  products.  Experience  shows  that  for 
this,  as  for  all  other  taxes,  postage  duties  included,  the  import 
usually  yields  an  increased  return  in  proportion  to  its  lightness. 
But  when  duties  have  a  protective  character,  the  wished-for  aim  is 
a  decisive  reason  for  their  being  raised  to  as  high  a  figure  as  pos- 
sible. 

As  for  raw  material,  and  even  for  food-stuffs,  men  of  former 
days  (for  instance,  in  the  system  of  List)  were  inclined  to  admit 
them  free.  But  now  that  progress  and  the  cheapness  of  transport 
have  wonderfully  facilitated  the  entrance  of  raw  material  and  agri- 
cultural produce,  the  producers  of  both,  who  are  usually  agricul- 
turists, have  asked,  not  without  reason,  why  they,  too,  are  not 
protected.  As  a  matter  of  fact,  duties  on  food-stuffs  (corn,  cattle, 
wine,  etc.)  have  become  the  rule  in  all  protectionist  countries, 
and  the  logic  of  events  will  not  be  long  in  laying  them  also  on  all 
raw  material. 

Still,  when  we  come  to  deal  with  imports  which  are  necessary 
to  feed  our  exports,  they  must  be  admitted  freely,  if  we  are 
desirous  of  extending  our  export  trade.  This  has  been  done  in 
the  form  of  goods  for  re-exportaHo7i ;  that  is  to  say,  free  entry  is 
granted  to  certain  raw  materials,  such  as  iron,  corn,  etc.,  only  on 
the  condition  that  this  material  shall  be  re-exported  in  the  shape 
of  a  manufactured  article,  such  as  machinery,  flour,  and  so  forth, 
within  a  specified  time.  The  producer  who  imports  his  raw 
materials  has  to  give  security  that  he  will  re-export  them  in  a  fixed 
period,  hence  the  name  under  which  this  system  is  known,  —  that 
of  "conditional  quittances."  There  is  also  another  plan  known 
under  the  name  of  a  "  drawback."  It  differs  from  the  preceding 
in  that  the  duties  must  be  paid  on  entry,  but  are  returned  on 
leaving.  Both  of  these  systems,  in  consequence  of  various  reasons, 
the  details  of  which  cannot  be  entered  on  here,  are  the  cause  of 
innumerable  difficulties,  and  even  of  harm  to  the  treasury. 

Finally,  as  to  the  importation  of  manufactured  products,  there 
can  be  no  possible  hesitation,  and  the  choice  lies  between  pro- 


260  PRINCIPLES    OF    POLITICAL    ECONOMY. 

hibition  and  duties  on  entry.  These  duties  on  importation  are 
called  specific  when  they  are  fixed  only  according  to  the  weight  or 
to  the  volume,  ad  valorem  when  they  are  fixed  according  to  the 
value  of  the  goods.  The  former  of  these  systems  is  the  more 
convenient,  the  latter  is  the  more  just. 

The  second  method,  that  of  import  duties,  is  usually  preferred, 
and  even  exclusively  adopted,  because,  on  the  protectionist  theory, 
it  unites  the  following  advantages  :  — 

Firstly,  of  protecting  the  national  industries  in  sufficient  measure 
by  graduating  the  duty  according  to  the  requirements. 

Secondly,  of  obtaining  for  the  State,  under  the  shape  of  customs 
duties,  of  revenues  which  cost  the  country  nothing,  since  they  are 
paid  by  foreigners. 

III.    Whether   the   Dangers   feared    by   the    Protectionist 
Theory  are  Real. 

Among  the  dangers  dreaded  by  the  protectionists  many  are 
certainly  baseless,  but  still  there  are  some  actual  dangers. 

There  is  no  reason  to  fear  that  imports  will  carry  away  all  the 
country's  coin,  for  observation,  as  well  as  reasoning,  shows  that 
this  circumstance  can  never  be  brought  except  in  an  accidental 
and  temporary  manner. 

There  is  no  reason  to  fear  that  foreigners,  by  selling  to  us,  will 
grow  rich  at  our  expense  ;  for  if  we  buy  from  them,  that  is  assuredly 
because  we  find  it  economical  to  do  so,  and  the  part  of  buyer  may 
be  just  as  advantageous,  though  in  a  different  way,  as  that  of  seller. 
The  English  and  the  Belgians,  thanks  to  their  freedom  of  impor- 
tation, can  buy  their  bread  for  2>d.  or  \d.  the  quartern  loaf,  whereas 
the  French  pay  7^.  or  8//.  Thus  there  is  a  saving  of  a  penny  on 
each  pound,  which,  multiplied  by  38,000,000  of  Frenchmen,  con- 
suming one  pound  per  head  each  day,  and  for  the  365  days  of 
the  year,  would  make  an  annual  sum  of  ^23,000,000,  —  a  rather 
higher  sum  than  the  interest  on  the  French  national  debt,  which 
in  1887  was  ^35,000,000. 


PRODUCTION.  261 

There  is  no  reason  to  fear  that  we  shall  be  driven  to  always 
import  without  ever  exporting,  for  imports  inevitably  excite  exports. 
Inversely,  there  is  no  reason  to  expect  to  be  always  able  to  export 
without  ever  importing,  for  exports  necessarily  cause  imports. 
Besides,  if  in  the  process  of  international  trade  all  countries  were 
resolved  to  play  exclusively  the  part  of  seller,  and  none  of  them 
agreed  to  play  the  part  of  buyer,  how  would  trade  be  possible  ? 

There  is  no  reason  to  fear  that  imports,  by  making  us  the  cus- 
tomers of  foreigners,  will  put  us  into  dependence  on  them,  for  it 
is  not  usually  the  case  for  customers  to  be  dependent  on  their 
tradesmen.  On  the  contrary,  it  is  the  tradesmen,  rather,  who  seek 
to  court  the  good  graces  of  their  customers. 

Finally,  there  is  no  reason  to  fear  that  imports  will  entirely  do 
away  with  the  national  labor,  for  people  forget  that  every  importa- 
tion entails  an  exportation  of  equal  value,  and  that  consequently 
the  national  labor  will  recoup  itself  in  one  quarter  for  what  it  has 
lost  in  another.  We  need  not  then  take  as  serious  the  appalling 
picture  just  set  before  us  —  that  of  a  nation  driven  from  its  territory 
by  foreign  competition,  and  compelled  to  emigrate  to  a  foreign 
land.  Even  admitting  that  a  country  might  be  unlucky  enough  to 
be  inferior  to  its  neighbors  in  all  branches  of  production,  none  the 
less  it  would  be  obliged  to  produce,  in  order  to  pay  for  the  foreign 
products  it  might  wish  to  consume,  unless  we  are  to  suppose  that 
foreigners  would  be  generous  enough  to  supply  the  country  gratui- 
tously with  all  its  necessaries,  in  which  case  its  position  would  be 
a  not  unenviable  one.  And  if  a  country  did  happen  to  be  reduced 
to  this  situation  of  general  inferiority,  if  it  was  really  poorer  than 
all  other  countries,  if  for  the  same  or  even  a  larger  amount  of  labor 
it  could  only  procure  a  smaller  amount  of  satisfactions  —  well,  it  is 
certainly  not  prohibition  of  foreign  products  that  could  change 
such  a  situation  in  the  least,  or  could  prevent  the  inhabitants  of 
that  country  from  emigrating  en  masse,  if  ever  misery  gained  the 
day  over  affection  for  one's  native  <and. 

On  the  contrary,  the  nations  of  Europe  would  be  unable  to 
obtain  food,  and  therefore  to  keep  at  home  their  ever-increasing 


262  PRINCIPLES    OF    POLITICAL    ECONOMY. 

population,  unless  they  were  to  import  from  abroad  larger  and 
larger  supplies.  Even  now,  England,  in  order  to  sustain  on  her 
limited  territory  her  daily  increasing  population,  is  obliged  to 
derive  from  imports  7nore  than  half  of  her  consumption  of  cereals, 
meat,  drink,  etc.  The  home  production  of  these  articles  was,  in 
1883,  reckoned  to  be  ;^i  69,140,000,  and  the  importation  of  the 
same  articles  at  _;^  174,660,000  (Stephen  Bourne,  in  the  Journal 
of  the  Statistical  Society,  September,  1883). 

To  return  to  the  dangers  feared  by  protectionists. 

It  is  true  that  free  trade,  precisely  because  it  enables  the  same 
amount  of  satisfaction  to  be  obtained  with  less  labor,  which  is  the 
characteristic  feature  of  all  progressive  production,  may  diminish 
the  demand  for  labor  in  the  very  proportion  of  the  economy  real- 
ized and  the  progress  accomplished. 

It  is  true  that  free  trade  almost  always  involves,  especially  at  its 
beginning,  great  displacement  of  labor,  which  at  certain  points 
may  cause  the  ruin  of  the  capital  sunk  or  the  throwing  out  of 
work  of  the  laborers  employed,  and  these  effects  may  take  the 
shape  of  literal  catastrophes. 

It  is  true  that  a  country  may  be  fearful  of  seeing  sink,  under  the 
weight  of  competition,  some  one  industry  which  it  judges  to  be 
essential  to  its  security ;  such  as  the  manufacture  of  arms,  of  pow- 
der, and  even  of  locomotives,  dockyards  for  the  construction  of 
war-ships,  and  even,  in  a  certain  measure,  of  merchant  shipping, 
the  breeding  of  horses,  perhaps  coal  mines  or  iron  fields ;  or  the 
industries  may  be  such  as  it  considers  to  be  useful  for  the  satis- 
factory working  of  its  social  constitution,  such  as  the  agricultural 
industry  in  general,  or  certain  domestic  industries.  It  may  fear, 
too,  especially  if  it  be  a  new  country,  of  seeing  growing  industries 
nipped  in  the  bud,  which,  if  they  had  had  time  to  develop,  might 
have  borne  fine  fruit. 

In  new  countries,  indeed,  growing  industries  have  to  contend 
with  great  disadvantages.  It  is  not  easy  for  them  to  compete 
with  industries  of  old  standing,  which  are  in  possession  of  vast 
markets,  and  which,  thanks  to  the  extent  of  their  production,  can 


PRODUCTION.  263 

push  to  their  utmost  the  improvements  of  division  of  labor  and  of 
production  on  a  large  scale.  The  struggle  is  the  more  arduous, 
because,  in  new  countries,  wages  are  higher  and  laborers  less 
experienced.  We  all  know  that  it  is  not  easy  to  grow  young  trees 
in  the  neighborhood  of  old  ones ;  for,  as  the  latter  have  already 
appropriated  all  the  light  of  the  heaven  and  all  the  sap  of  the  soil, 
the  younger  trees  have  room  to  spread  neither  their  roots  nor 
their  branches.  Thus  we  understand  well  enough  that  the  Aus- 
tralian colonies,  who  supply  the  whole  world  with  wool,  are 
desirous  of  turning  it  into  cloth  themselves,  instead  of  sending  it 
to  England,  to  have  it  manufactured  there,  and  then  returned  to 
them.  In  the  same  way,  if  the  French  colony  of  Algeria  were  to 
turn  its  alfa  grass  into  paper  on  the  spot,  instead  of  exporting  it 
in  the  raw  state  into  England,  or  if  Senegal  could  turn  its  arachides 
(ground-nuts)  into  oil,  that  would  be  a  great  gain,  not  only  for  them- 
selves, but  for  the  whole  world  ;  for  there  is  no  more  sterile  labor 
than  that  of  transporting  from  one  end  of  the  earth  to  the  other 
a  dead  weight  and  useless  material ;  that  is  a  true  labor  of  Sisyphus, 
for  every  useless  act  of  conveyance  is  an  useless  waste  of  labor. 

Even  if  it  were  necessary  for  them  to  bear  a  certain  sacrifice 
for  some  time,  in  order  to  put  their  manufactures  into  a  state  of 
stability,  to  enable  them  to  take  root  and  successfully  compete 
with  foreign  manufactures,  that,  in  our  opinion,  would  be  an  ex- 
pense well  incurred,  which  one  day  would  be  repaid  them  with 
interest. 

It  must  be  confessed  that  this  theory  seems  to  be  confirmed  by 
the  example  of  the  United  States,  who,  guarded  by  that  rampart 
of  protection  that  they  had  reared,  have  so  brilliantly  effected 
their  economic  evolution,  and  have  become  one  of  the  chief  man- 
ufacturing countries  in  the  world.  Would  American  industry  have 
grown  so  quickly  had  it  had,  from  its  first  beginnings,  to  struggle 
against  EngUsh  manufactures,  and  might  it  not  have  been  nipped 
in  the  bud  by  its  powerful  rival  ?  That  is  at  least  a  question  of 
debate. 

It  is  also  worthy  of  note  that  most  of  the  English  colonies. 


264  PRINCIPLES    OF    POLITICAL    ECONOMY. 

nearly  all  the  Australian  colonies,  Canada,  and  so  forth,  although 
reared  in  the  traditions  of  free  trade,  have  felt  the  necessity  of 
having  recourse  to  the  protectionist  system. 

Within  these  limits  the  dangers  pointed  out  by  the  protection- 
ists are  real,  and  within  these  limits  we  agree  with  them  that  the 
State  has  the  right  and  the  duty  to  guard  against  these  dangers 
by  the  means  that  it  judges  to  be  best  fitted  to  that  end.  The 
dogma  of  inadmissibility  urged  by  the  liberal  school  against  every 
intervention  of  the  State  touches  us  little,  not  only  because  this 
principle  has  no  absolute  scientific  value,  but  especially  because 
the  question  here  rests  in  the  domain  of  politics  rather  than  in 
that  of  economy.  The  point  is  to  determine,  not  the  best  possible 
mode  of  commercial  or  industrial  organization,  but  the  best  mode 
of  preserving  the  industrial  and  commercial  power  of  a  particular 
country.  We  do  not  deny  that  the  system  of  protection  is  a 
burden  to  the  country  which  is  obliged  to  resort  to  it,  and  that  it 
entails  considerable  sacrifices ;  in  that  we  fully  agree  with  the 
free-traders ;  we  only  add  that  a  country  does  not  hesitate  to  lay 
on  itself  equal  or  even  heavier  sacrifices,  when  the  question  at 
issue  is  to  preserve  its  political,  military,  maritime,  or  colonial 
supremacy.  Why  should  it  not  do  the  same  for  the  purpose  of 
saving  its  industrial  or  commercial  supremacy,  for  that  is  of  at 
least  equal  importance  both  for  its  national  existence  and  for  its 
destiny  ? 

IV.    On  the  Disadvantages  of  Protective  Duties. 

If  we  can  grant  the  essential  idea  of  protectionism,  viz.  that 
the  State  has  the  right  to  protect  in  certain  particular  cases  the 
industries  that  are  useful  to  a  country,  still  in  our  opinion  the 
means  employed  for  that  end  do  not  appear  to  be  justified,  al- 
though they  have  been  hallowed  by  a  practice  of  several  centuries  : 
we  refer  to  the  laying  of  import  duties. 

Numerous  disadvantages  are  presented  by  this  mode  of  pro- 
cedure. 


PRODUCTION.  265 

Firstly.  It  fails  to  achieve  the  proposed  end,  for  xt  brings 
about  an  unequal  protection,  which  is  insufficient  for  the  weak 
and  useless  for  the  strong.  Take  a  duty  of  two  shillings  on  the 
hundredweight  of  corn,  which  raises  the  price  of  corn  from  8  to 
10  shillings.  The  landowner  who  cultivates  inferior  land  or  who 
has  but  scanty  resources,  who  produces  merely  ten  hundredweight 
the  acre,  will  only  reap  an  increase  in  his  income  of  10  shillings, 
which  probably  will  not  be  enough  to  cover  his  expenses ;  whereas 
the  landowner  who  being  already  favored  by  nature  or  by  im- 
proved methods,  grows  thirty  hundredweight  the  acre,  and  conse- 
quently could  very  well  do  without  any  protection,  will  find  that 
his  income  is  increased  by  ^3  the  acre. 

Secondly.  It  grievously  shackles  foreign  trade,  for  by  reducing 
the  importation  of  goods  it  reduces  exports  in  the  same  proportion  ; 
it  is  therefore  in  most  flagrant  opposition  to  the  efforts  that  nations 
are  making  to  facilitate  communication,  to  pierce  through  moun- 
tains, to  cut  through  isthmuses,  to  furrow  the  seas  with  lines  of 
subsidized  steamboats  and  telegraph  cables,  to  open  international 
exhibitions,  to  establish  monetary  conventions,  and  so  forth. 

Thii-dly.  It  does  the  greatest  harm  to  industrial  production  by 
raising  the  cost  of  productio7i,  either  directly  by  the  increased 
deamess  of  raw  material,  or  indirectly  by  the  increased  dearness 
of  manual  labor.  Hence  spring  permanent  and  insoluble  con- 
flicts between  the  various  branches  of  production :  if  import 
duties  are  put  on  wools  or  silks  to  protect  the  producers  of  sheep 
or  silkworm  cocoons,  there  arise  outcries  for  the  silk-weavers  and 
wool-spinners ;  if  import  duties  are  put  on  wool,  silk,  or  cotton 
threads,  the  weaving  industries  are  ruined.  The  complicated 
mechanism  of  the  treatment  of  "  goods  for  re-exportation  "  is  an 
altogether  inefficacious  palliative. 

Fourthly.  It  does  still  greater  harm  to  the  material  production 
by  removing  the  stimulus  of  foreign  competition.  In  a  political 
speech  Prince  Bismarck  spoke  of  those  pike  that  are  put  in  carp- 
ponds  to  keep  the  carp  active  and  to  prevent  them  burying 
themselves  in  the   mud.     That  simile  is  especially  appropriate 


266  PRINCIPLES    OF    POLITICAL    ECONOMY. 

here.  If  we  desire  —  and  that  is  the  protectionist's  desire  —  a 
country  to  maintain  its  position  as  a  great  industrial  and  commer- 
cial power,  it  must  be  compelled  constantly  to  renew  its  tools  and 
machinery  and  its  methods  of  work,  ceaselessly  to  eliminate  worn- 
out  or  obsolete  organs,  just  as  the  snake  which  renews  its  youth 
by  casting  its  skin.  As  this  operation  is  always  a  disagreeable  one, 
it  is  doubtful  whether  producers  would  submit  to  it  with  a  good 
grace,  were  they  not  obUged  to  do  so  by  an  exterior  power. 

Fifthly.  Finally,  and  above  all,  it  nurses  in  the  country  a  fatal 
illusion,  in  causing  it  to  regard  as  a  gain  what  is  really  a  burden. 
The  advocates  of  protective  duties  assert,  in  fact,  that  as  import 
duties  are  laid  on  foreigners,  they  do  not  burden  the  country  at 
all ;  nay,  that  they  actually  add  to  the  income  of  the  state.  This 
illusion,  the  benefits  of  which  the  protective  system  has  reaped, 
has  made  its  fortune,  but  ought  really  to  be  enough  to  condemn  it. 

For  the  effect  of  import  duties  is  to  add  to  the  price  of  com- 
modities, not  only  of  the  imported  goods,  but  also  of  similar 
articles  which  are  consumed  at  home,  so  that  the  public  pays  out 
from  its  pocket,  in  the  shape  of  higher  prices,  ten  times  the  sum 
that  is  gained  by  the  State.  Let  us  suppose  that  10,000,000  hun- 
dredweight of  foreign  corn  enter  France,  worth  on  their  arrival 
1 7  shillings  the  hundredweight.  In  consequence  of  the  competi- 
tion of  this  foreign  corn  the  80,000,000  hundredweight  of  corn, 
which  are  approximately  the  production  of  France,  are  also  sold 
only  at  17  shillings,  and  this  is  the  precise  subject  of  complaint. 
Let  us  then  put  a  duty  of  four  shillings  on  the  importation  of 
foreign  corn.  From  the  custom-house  receipts  the  State  (pre- 
mising that  this  duty  does  not  reduce  the  quantity  imported)  will 
gain  10,000,000  X  4  =  ;^2,ooo,ooo.  Now  let  us  see  how  the 
public  fares ;  not  only  will  it  pay  four  shillings  more  for  each  hun- 
dredweight of  foreign  corn,  that  is  to  say,  ;^2,ooo,ooo,  which 
is  exactly  equal  to  what  the  State  receives,  but  also  it  will  pay 
four  shillings  more  for  every  hundredweight  of  corn  produced 
in  France,  the  French  producers  naturally  hastening  to  sell  their 
corn  at  the  same  price  as  the  foreign  producers ;  that  is  to  say, 


PRODUCTION.  267 

80,000,000  X  4  =  ^16,000,000.  That  is  to  say,  these  protective 
duties  will  have  brought  altogether  ^2,000,000  into  the  State 
coffers,  and  ;^i 6,000,000  into  the  pockets  of  home  producers, 
but  will  have  cost  consumers  _;^  18,000,000.  That  is  the  decisive 
argument  against  import  duties,  and  in  spite  of  its  efforts,  the  pro- 
tectionist system  has  never  succeeded  in  refuting  it. 

The  usual  answer  is  to  assure  us  that  import  duties  are  paid 
by  the  foreign  producers,  and  that  the  price  of  the  imported  com- 
modity will  not  be  increased.  Allowing  for  one  moment  that  this 
reply  is  a  valid  one,  yet  we  should  have  to  conclude  from  it  that, 
since  prices  will  not  be  changed,  the  national  industry  will  not  be 
protected  one  whit,  and  the  criticisms  we  have  just  made  on  the 
system  of  protective  duties  will  receive  a  last  and  even  more 
clenching  argument,  "  import  duties  are  of  no  avail." 

However,  though  this  reply  of  the  protectionists  may  be  a  sound 
one  in  certain  particular  cases,  it  cannot  be  accepted  in  a  general 
way. 

In  consequence  of  a  law,  which  is  well  known  in  this  matter  of 
imports  under  the  name  of  the  "  law  of  transference,"  every  tax 
paid  by  a  producer  or  a  merchant  is  laid  by  him  on  his  goods, 
and  thus  falls  upon  the  consumer.  A  fortiori  this  will  be  the  case 
with  the  foreign  producer.  For  how  can  it  be  reasonably  sup- 
posed that  a  country  has  the  power  of  throwing  back  on  the  for- 
eigner all  or  part  of  its  imports  ?  Were  such  a  pleasant  receipt  to 
exist,  it  is  clear  that  each  country  would  hasten  to  have  its  duties 
paid  by  its  neighbors,  and  consequently  no  one  would  be  a  whit 
better  off. 

Yet  this  notion  is  constantly  reproduced  :  people  are  never 
tired  of  saying  that  the  United  States,  thanks  to  their  protective 
system,  have  been  skilful  enough  to  make  foreigners  pay  the 
interest  on  their  national  debt,  and  even  the  greater  part  of  the 
principal.  It  must  be  confessed  that  the  Americans  have  espe- 
cially aided  the  spreading  of  this  opinion  by  expressing  it  them- 
selves in  the  most  naive  manner.  It  can  be  judged  from  the 
following  extract  from  a  speech  of  Mr.  Lawrence,  Comptroller  of 


268  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  United  States  Treasury  :  "  By  our  customs  tariff  we  inform  the 
foreign  manufacturer  that  he  may  send  his  products  here,  but  that 
he  must  pay  for  this  privilege.  He  is  therefore  compelled  to 
reduce  his  prices  and  his  profits,  and  to  aid  in  the  formation  of 
that  revenue  which  enables  us  to  wipe  out  our  public  debt,  and  to 
pension  off  our  soldiers  who  were  maimed  or  wounded  during  the 
Civil  War.  This  is  distributive  justice,  since  we  force  England 
and  France  to  pay  their  share  of  the  expenses  of  a  rebelUon  which 
they  maliciously  encouraged."  (Quoted  in  the  Economist  /ran- 
gats,  1882,  Vol.  I,  page  441.)  Similarly,  when  Russia  resolved  that, 
to  renew  her  stock  of  money,  customs  duties  should  henceforward 
be  paid  only  in  gold,  she  evidently  imagined  that  foreigners,  when 
sending  her  their  goods,  would  at  the  same  time  send  the  quantity 
of  gold  necessary  for  the  payment  of  these  duties.  That  was  won- 
derfully innocent !  It  was  the  Russian  buyers  who  were  obliged 
to  obtain  the  necessary  gold,  and  not  a  piece  more  entered  the 
country  ! 

The  argument  of  the  protectionists  may  be  sound,  however,  in 
one  case  which  has  been  especially  noted  by  John  Stuart  Mill. 
Every  rise  in  price  involves  a  reduction  in  consumption.  The 
foreign  producer  will  then  have  to  ask  himself  whether  it  is  not 
necessary  for  him  to  make  a  sacrifice  and  lower  the  price  of  his 
articles  by  a  sum  equal  to  the  amount  of  the  duty,  in  order  to 
keep  his  custom  by  adhering  to  his  former  prices.  The  duty 
which  falls  on  his  products  leaves  him,  therefore,  on  the  horns  of 
this  unpleasant  dilemma  :  either  he  must  restrict  the  amount  of 
his  sales,  or  he  must  suffer  a  sacrifice  in  prices.  It  is  not  impos- 
sible that,  when  all  is  said  and  done,  his  interests  may  lead  him  to 
choose  the  second  alternative,  i.e.  to  burden  himself  with  all  or 
part  of  the  duty.  However,  two  conditions  are  requisite  for  his 
resigning  himself  to  this  extremity  :  firstly,  his  cost  price  may 
enable  him  to  do  so  ;  secondly,  he  is  unable  to  send  his  products 
to  another  market.  It  would  be  chimerical  to  base  one's  actions 
on  such  an  eventuality  ;  in  any  case,  if  this  was  realized  by  chance, 
the  mark  aimed  at  by  the  establishment  of  the  protective  duty  is 


PRODUCTION.  269 

missed.  It  is  impossible  to  escape  from  this  dilemma.  Besides, 
observation  of  facts  shows,  at  least  in  a  general  way,  that  protective 
duties  induce  a  corresponding  rise  in  price. 

V.    Why  the  Bounty  System  is  Preferable. 

If,  then,  a  state  judges  that,  under  certain  particular  circum- 
stances, it  is  useful  to  protect  the  national  industry,  it  should  resort 
not  to  the  system  of  import  duties,  but  to  the  far  simpler  and 
more  candid  system  of  bounties,  whether  in  the  shape  of  guarantees 
of  interest  or  of  direct  subventions. 

This  method  presents  none  of  the  disadvantages  which  we  have 
shown  to  be  inherent  in  the  import  duty  system. 

Firstly.  It  can  be  graduated  at  will,  so  as  to  protect  only  those 
who  really  need  protection,  and  no  others.  It  may  be  said,  "  that 
will  be  arbitrary."  The  system  of  protective  duties  is  also  arbi- 
trary, the  arbitrariness  of  a  blind  man ;  whereas  this  may  be  that 
of  an  intelligent  one. 

Secondly.  It  lays  no  shackles  on  foreign  trade,  and  allows  the 
full  development  both  of  imports  and  of  exports,  since  it  does  not 
enhance  the  price  of  products. 

Thirdly.  It  does  not  interfere  with  production,  for  it  does  not 
make  raw  materials  dearer  and  does  not  raise  the  cost  of  produc- 
tion ;  on  the  contrary,  it  lowers  it.  It  is  true  that,  by  granting  a 
certain  measure  of  security  to  the  national  industries,  it  may  favor 
routine.  That  is  an  evil  inherent  in  every  possible  system  of  pro- 
tection; still,  bounties  may  be  established  under  certain  condi- 
tions calculated  to  stimulate  the  progress  of  the  protected  industry. 
Thus  the  bounties  granted  by  the  law  of  188 1  to  merchant  ship- 
ping are  more  or  less  considerable,  according  as  the  ship  is  a  sail- 
ing-vessel or  a  steamship,  made  of  wood  or  of  steel,  and  propor- 
tionate to  its  speed. 

Fourthly.  Finally,  and  above  all,  this  system  only  professes  to 
be  what  it  really  is  —  a  sacrifice  imposed  on  the  country  for  a 
reason  of  public  utility.     It  allows  no  illusion  as  to  this,  and  gives 


270  PRINCIPLES    OF    POLITICAL    ECONOMY. 

rise  to  no  ambiguity.  The  public  knows  that  it  pays  for  this  pro- 
tection, and  knows  exactly  the  price  that  it  pays.  Thus  it  may  be 
held  to  be  certain  that  a  State  will  only  resort  to  such  measures  in 
so  far  as  their  utility  is  clearly  perceived,  and  that  in  all  cases 
they  will  not  be  extended  beyond  foreseen  contingencies,  nor  pro- 
longed beyond  the  fixed  limit  or  term.  Therein  lies  the  economic 
and  moral  superiority  of  this  system. 

This  it  is  that  is  little  realized  by  the  protectionists,  and  hence 
they  rarely  ask  for  the  application  of  this  system.  They  would 
have  too  much  trouble  in  obtaining  it.  Yet  the  bounty  system  is 
practised  in  France  in  the  shape  of  bounties  for  merchant  ship- 
ping, both  for  building  and  for  navigation,  and  is  justly  preferred 
to  surcharges  on  foreign  ships.  In  new  countries  it  happens  often 
enough  that  the  State  guarantees  a  certain  interest  on  capital  sunk 
in  various  industrial  undertakings.  Thus  Brazil  has  granted  a 
guarantee  of  six  per  cent  on  sugar  manufactories,  and  a  bill  has 
been  discussed  in  the  Argentine  Republic  for  granting  a  similar 
guarantee  on  "  frozen  meat  "  works. 

VI.     On  Some  Moderate  Forms  of  Protection. 

Some  years  ago  a  party  was  formed,  which,  demanding  protec- 
tion in  a  general  way,  asked  for  reciprocity  in  the  matter  of  customs 
tariffs.  This  is  called  in  England  fair  trade,  in  antithesis  to  free 
trade. 

If  the  system  is  employed  by  way  of  reprisals  to  compel  a  pro- 
tectionist country  to  lower  its  duties,  —  if,  for  example,  England 
answered  the  prohibitive  tariffs  of  the  United  States  by  heavily 
taxing  American  produce,  —  in  that  case  it  might  very  well  be 
justified.  As  a  matter  of  fact,  though,  such  a  question  is  political 
rather  than  economical. 

If  we  go  further,  and  attempt  to  discover  in  it  a  scientific  theory, 
it  is  left  without  a  leg  to  stand  on.  If  the  protective  system  is 
held  to  be  beneficial,  it  should  be  adopted ;  if  it  is  regarded  as  an 
evil,  it   should  be  rejected  ;  but  whether  neighboring  countries 


PRODUCTION.  271 

adopt  it  or  not  is  their  affair,  not  ours.  No  doubt,  were  England 
to  lay  duties  on  American  products,  she  would  injure  the  United 
States,  but  she  would  hurt  herself  too ;  and  the  bad  turn  we  are 
able  to  do  our  neighbor  cannot  be  held  to  compensate  for  the 
harm  we  do  ourselves. 

Another  revised  system  is  that  of  countervailing  duties.  Its  ad- 
vocates assert  that  when  a  country  bears  a  heavier  load  of  taxes 
than  foreign  countries,  to  re-establish  equality  in  competition  it 
should  burden  foreign  products  with  duties  which  are  equivalent 
to  the  charges  borne  by  its  citizens. 

This  argument  is  entirely  based  on  the  notion  that  customs 
duties  are  borne  by  the  foreign  producers.  If,  as  we  have  at- 
tempted to  show,  that  is  a  pure  illusion,  and  if  these  duties  really 
fall  upon  our  own  people  in  the  shape  of  a  rise  in  prices,  then  we 
can  appreciate  the  wonderful  originality  of  this  so-called  compen- 
sation, which,  under  pretence  of  equalizing  the  struggle,  doubles 
the  burdens  of  the  public. 

Now  if  it  is  merely  meant  that  foreign  products  ought  to  be 
laden  with  duties  equal  to  those  paid  by  the  same  products  within 
the  country,  no  one  will  contradict  that  principle  of  fiscal  equality. 
Yet  this  equality  is  not  always  observed,  even  in  protectionist 
countries.  Thus  one  of  the  great  grievances  at  the  present  moment 
(1888)  of  the  vineyard  proprietors  and  wine  merchants  in  the 
South  of  France  is,  that  Spanish  and  Italian  wines  enter  the  coun- 
try with  four  or  five  litres  of  alcohol  added  per  hectolitre,  and  pay 
only  2/6  (half-a-crown)  import  duty,  whereas  in  France  each  litre 
of  alcohol  pays  1/4  (one  shilling  and  four  pence)  as  excise.  That 
is  an  unjust  privilege  to  the  profit  of  foreign  producers,  and  has 
been  well  called  a  sort  of  protection  turned  upside  down. 


CHAPTER  VII. 
CREDIT. 

I.    Credit  Operations. 

However  ingenious  exchange  may  be,  it  is  an  arrangement  that 
cannot  answer  all  needs ;  for,  in  order  to  obtain  anything  by  ex- 
change, one  must  be  able  to  give  in  exchange  an  equal  value. 
Now  not  every  one  is  in  a  position  to  supply  this  value  ;  if  each 
person  who  required  lodgings  was  obliged  to  buy  a  house,  it  is 
easy  to  understand  how  extremely  awkward  such  a  state  of  affairs 
would  be. 

Men  have  therefore  been  led  to  conceive  an  arrangement  which 
is  akin  to  exchange,  but  which  is  nevertheless  different,  to  wit : 
lending,  by  means  of  which  I  can  obtain  a  thing  provisionally  and 
make  use  of  it  for  a  certain  space  of  time,  on  condition  of  merely 
giving  to  the  person  who  surrenders  it  to  me  an  atinuiiy  propor- 
tional to  the  time  I  have  enjoyed  the  use  of  his  article.  The  name 
given  to  this  annuity  varies  according  to  circumstances,  such  as 
farm-rent,  house-rent,  intetrst.  This  is  not  the  place  to  discuss 
the  legitimacy  or  illegitimacy  of  this  annuity  ;  that  will  be  dealt 
with  when  we  come  to  speak  of  the  distribution  of  wealth. 

In  popular  speech,  however,  the  word  "  credit "  has  a  more 
restricted  sense.  It  is  applied  not  to  the  loan  of  anything  whatso- 
ever, say  a  piece  of  land  or  a  house,  but  only  to  the  loan  of  a  sum 
of  money.  This  is  easily  explained  by  the  fact  that,  as  money  in 
modem  societies  is  the  form  in  which  all  capital  is  seen,  every  loan 
of  capital  usually  takes  the  shape  of  a  loan  of  money ;  but  we 
ought  further  to  note  that  the  loan  of  money  has  a  special  charac- 
teristic which  radically  marks  it  off  from  the  loan  of  a  piece  of 
land  or  of  a  house. 
272 


PRODUCTION.  273 

This  special  characteristic  Hcs  in  the  circumstance  that  the  thing 
lent  can  only  be  utilized  by  the  borrower  on  the  condition  that  it 
is  consumed,  i.e.  annihilated  by  him.  The  man  who  borrows  cap- 
ital in  the  form  of  a  bag  of  money  must  evidently,  whatsoever  use 
he  may  wish  to  make  of  it,  empty  the  bag  down  to  the  last  shilling. 
Similarly  the  borrower  of  a  sack  of  corn,  whether  he  borrows  to 
sow  it  or  to  eat  it,  is  compelled  to  destroy  the  corn,  whether  he 
intends  to  put  it  in  the  ground  or  grind  it  under  the  millstone. 

This  characteristic  is  not  specially  confined  to  money  ;  it  is  pos- 
sessed by  all  things  which  in  legal  language  are  res  fungibiles  {vide 
Hunter,  Roman  Law,  page  141),  i.e.  which  are  consumed  at  the 
first  time  of  using. 

The  feature  just  discussed  introduces  into  the  contract  now 
under  analysis  serious  modifications,  as  much  for  the  borrower  as 
for  the  lender. 

Firstly.  The  lender,  to  take  him  first,  is  exposed  to  far  more 
considerable  risks.  The  lender  of  a  house  or  of  a  piece  of  land 
knows  that  it  will  be  restored  to  him  at  the  expiration  of  the  lease  ; 
for  he,  so  to  speak,  does  not  lose  sight  of  it  while  it  is  in  the  pos- 
session of  the  borrower  ;  but  the  lender  of  a  i-es  fungibilis,  on  the 
contrary,  knows  that  he  is  irrevocably  deprived  of  it ;  he  knows 
that  it  is  about  to  be  destroyed,  and  that  such  is  its  destination. 

The  Roman  jurisconsults  had  excellently  remarked  that  the 
thing  given  in  mutuum  had  to  be  alienated,  thus  differing  from 
the  thing  given  in  commodatum,  which  is  merely  lent.  For  when 
the  date  fell  due,  the  borrower  was  not  bound  to  return  the  thing, 
for  it  no  longer  existed,  but  had  to  transfer  the  proprietorship  of 
something  equivalent. 

The  lender,  true  enough,  reckons  on  an  equivalent  wealth  to  re- 
place that  which  he  has  lent,  but  this  wealth  is  still  non-existing ; 
it  must  be  produced  for  that  purpose,  and  everything  that  is  future 
is  ipso  facto  uncertain.  Legislators,  therefore,  have  exercised  their 
ingenuity  to  guarantee  the  lender  against  all  danger ;  and  the  pre- 
cautions they  have  thought  out  to  that  end  constitute  one  of  the 
most  important  branches  of  civil  law ;  to  wit,  guaranty,  mortgages, 


274  PRINCIPLES    OF    POLITICAL    ECONOMY, 

joint  responsibility,  etc.  Nevertheless,  a  certain  amount  of  trust 
is  also  required  on  the  part  of  the  lender,  that  is  to  say,  an  act  of 
faith,  and  this  is  precisely  the  reason  why  men  have  confined  to 
this  particular  form  of  loan  the  name  "  credit,"  which,  by  its  ety- 
mological origin,  presupposes  an  act  of  faith  {creditu7n,  credere). 

Secondly.  To  turn  to  the  borrower  :  he  is  not  merely  bound, 
like  the  farm-tenant  or  the  lodger,  to  preserve  the  thing  lent  to 
him  and  to  keep  it  in  good  condition,  so  as  to  return  it  at  the 
expiration  of  the  fixed  time  ;  after  having  used  it,  that  is  to  say, 
destroyed  it,  he  must  labor  so  as  to  build  up  from  it  an  equivalent, 
so  as  to  wipe  out  his  obligation  at  the  appointed  date.  It  is 
necessary,  therefore,  that  he  should  be  extremely  careful  to  employ 
this  wealth  in  a  productive  manner.  If  he  is  unlucky  enough  to 
consume  it  unproductively,  say  on  personal  expenses,  or  even  if 
for  any  reason  he  fails  to  reproduce  a  wealth  which  is  at  least 
equivalent  to  that  lent  him,  he  is  ruined.  In  fact,  the  history  of 
all  countries  and  of  all  ages  is  an  actual  martyrology  of  borrowers 
who  have  been  ruined  through  credit.  Credit,  therefore,  is  an 
infinitely  more  dangerous  instrument  of  production  than  those  we 
have  heretofore  considered,  and  is  a  tool  that  should  only  be  used 
by  very  experienced  hands. 

It  is  sometimes  said  that  credit  only  differs  from  exchange  in 
having  for  its  object,  not  any  commodities  whatsoever,  but  merely 
capital.  That  is  correct,  for  we  know  that  we  must  regard  as  capi- 
tal all  wealth  that  is  employed  in  the  reproduction  of  new  wealth. 
Now,  as  the  operation  just  analyzed  demands  the  productive 
employment  of  lent  effects,  it  is  right  to  say  that  the  wealth  which 
is  the  object  of  lending  is  or  should  be  regarded  as  capital.  So 
much  the  worse,  then,  for  the  borrower,  if  he  is  foolish  enough  to 
treat  it  as  an  income.  He  misunderstands  the  meaning  of  the 
contract,  and  for  that  reason  the  contract  becomes  for  him  a 
snare. 

It  is  also  said  sometimes  that  credit  differs  from  exchange  in 
that  it  consists  not  in  the  exchange  of  two  existing  wealths,  but 
in  the  exchange  of  a  present  for  a  future  wealth.     That,  too,  is  a 


PRODUCTION.  275 

correct  statement,  for  we  have  just  seen  that  the  lender  surrenders 
his  article,  in  order  to  receive  in  exchange  for  it,  at  the  date  when 
his  loan  expires,  an  article  which  is  at  present  non-existent,  and 
which  must  be  created  during  the  interval. 

Later  on  we  shall  find  in  this  the  explanation  of  interest  and  dis- 
count. There  is  another  credit  operation  which  holds  an  important 
place  in  commercial  transactions,  and  is  known  under  the  name  of 
"sale  for  a  payment  at  a  future  date,"  or  deferred  payment.  At 
first  sight  we  might  be  led  to  think  that  sale  for  payment  at  a  future 
date  is  nothing  but  a  sale,  and  ought  therefore  to  fall  within  our 
chapter  on  exchange.  Yet  it  is  nothing  of  the  sort,  for  the  buyer, 
in  exchange  for  the  article  handed  over  to  him,  gives  nothing,  prob- 
ably because  he  has  no  money ;  he  merely  acknowledges  himself 
to  be  a  debtor  for  the  value  received,  just  as  if  he  had  borrowed 
it.  He  is  bound  to  apply  himself  to  reproduce  this  value  before 
the  appointed  date,  if  he  desires  to  be  able  to  pay  it  back.  This 
clearly  shows  the  feature  alluded  to  above  —  the  exchange  of 
present  wealth  for  future  wealth.  Still,  one  might  say  the  bor- 
rower pays  interest,  whilst  the  buyer  for  deferred  payment  pays 
nothing  of  the  kind.  That  is  erroneous.  The  price  of  an  article 
sold  for  deferred  payment  is  also  higher  than  the  price  of  ready 
money  sales.  The  difference,  which  is  called  discount,  exactly 
represents  the  interest  on  the  capital  lent  to  the  buyer. 

The  above  are  the  fundamental  credit  operations. 

II.     Credit  Papers. 

Yet  these  operations  required  a  further  improvement.  If  it  was 
very  advantageous  for  the  borrower,  whether  in  the  case  of  a  loan, 
or  of  sale  for  deferred  payment,  to  have  capital  at  his  disposal  for 
a  certain  time,  on  the  other  hand  it  was  exceedingly  disadvan- 
tageous for  the  lender  to  be  obliged  to  do  without  that  capital  for 
the  same  period  of  time.  A  manufacturer  has  daily  to  make  pur- 
chases and  pay  wages.  He  renews  day  by  day  the  capital  which 
he  requires  by  the  sale  of  his  goods,  but  if  he  sells  these  goods  for 


276  PRINCIPLES    OF    POLITICAL    ECONOMY. 

deferred  payment,  it  certainly  appears  that  he  must  abandon  the 
hope  of  obtaining  his  cash,  and  that  he  will  find  it  impossible  to 
carry  on  his  business. 

What  is  to  be  done?  Could  it  perhaps  be  brought  about  that 
the  same  capital  should  at  one  and  the  same  time  be  at  the  dis- 
posal of  two  different  persons,  the  man  who  has  lent  it  and  the 
man  who  has  borrowed  it  ? 

Yes,  that  can  be  managed.  It  is  by  means  of  credit  that  this 
apparently  insoluble  problem  is  solved. 

In  exchange  for  the  capital  surrendered  by  him,  the  lender  or 
the  seller  for  deferred  payment  receives  a  document,  i.e.  a  piece 
of  paper  in  various  forms,  a  note  to  order,  a  bill  of  exchange, 
etc.,  and  this  document  represents  a  value  which,  like  all  other 
values,  can  be  sold.  If,  then,  the  lender  wishes  to  re-obtain  his 
capital,  nothing  is  simpler.  It  is  enough  for  him  to  sell,  or,  as  the 
phrase  goes,  to  negotiate  his  paper. 

The  following  are  the  two  principal  forms  of  credit  docu- 
ments :  — 

Firstly,  the  note  to  order,  which  is  drawn  up  in  this  fashion : 
''  On  ninety  days  from  date  I  will  pay  to  Brown,  or  to  his  order, 
the  sum  of  ;^40o,  the  value  received  in  goods.  April  i,  1888. 
(Signed)  Jones." 

Seco7idly,  the  bill  of  exchange,  after  this  fashion :  "  On  ninety 
days  from  date  pay  to  Robinson,  or  to  his  order,  the  sum  of  ^400, 
value  received  in  goods.     April  i,  1888.     (Signed)  Jones." 

The  note  to  order,  then,  is  simply  a  promise  to  pay,  made  by 
the  debtor  to  his  creditor.  The  bill  of  exchange  is  a  little  more 
complicated.  It  is  an  order  to  pay,  addressed  by  the  creditor  to 
his  debtor,  an  order  to  pay  not  to  himself,  the  creditor,  but  to  a 
third  party.  It  is  thanks  to  this  form  that  the  bill  of  exchange  is 
especially  employed  to  settle  transactions  between  one  place  and 
another,  or  between  different  countries. 

Each  credit  operation,  then,  gives  birth  to  a  credit  paper. 
Since  in  every  busy  society  these  credit  operations  are  exceedingly 
numerous,  in  consequence  of  the  fact  that  each  commodity  is 


PRODUCTION.  277 

often  sold  three  or  four  times  (each  sale  being  for  deferred  pay- 
ment, and  therefore  giving  rise  each  time  to  a  new  credit  paper), 
the  credit  papers  which  exist  in  a  country  like  France  or  England 
represent  an  enormous  mass  of  value,  perhaps  ^400,000,000 
higher  in  any  case  than  the  value  of  any  class  of  goods  whatsoever. 

III.    Whether  Credit  can  create  Capital. 

Credit  has  attained  such  importance  in  our  modern  societies 
that  we  are  tempted  to  attribute  to  it  powers  that  are  miraculous. 
By  speaking  every  moment  of  great  fortunes  that  are  founded  on 
credit,  by  stating  that  the  largest  enterprises  of  modern  industry 
have  credit  for  their  base,  we  are  persuaded  into  the  belief  that 
credit  is  an  agent  of  production,  which,  just  like  land  or  labor,  can 
create  wealth. 

Yet  that  is  a  phantasmagoric  construction.  Credit  is  not  an 
agent  of  production ;  what  is  a  far  different  thing,  it  is  a  special 
mode  of  production,  just  like  exchange,  just  like  division  of  labor. 
As  we  have  seen,  it  consists  of  the  transferring  of  wealth,  of  capi- 
tal, from  one  hand  to  another,  but  to  transfer  is  not  to  create. 
Credit  creates  capital  not  a  whit  more  than  exchange  creates 
commodities. 

This  illusion  has  been  fostered  by  the  existence  of  credit  papers. 
We  have  seen  that  each  loan  of  capital  is  represented  in  the 
lender's  hands  by  a  negotiable  paper  of  equal  value.  Hence  it 
seems,  that  the  act  of  lending  has  the  marvellous  power  of  making 
two  capitals  out  of  one.  The  former  capital  of  ;^ioo  which  has 
passed  into  your  hands,  and  the  new  capital  which  is  represented 
in  my  hands  by  a  bill  for  ^100,  do  not  they  make  two?  From 
the  subjective  point  of  view  that  paper  is  capital.  It  is  so  for  me, 
but  it  is  not  so  for  the  country ;  for  it  is  obvious  that  it  can  only 
be  negotiable  while  another  person  is  willing  to  surrender  to  me 
in  exchange  capital  which  he  possesses  in  the  shape  of  money  or 
of  goods.  This  paper,  then,  is  not  capital  per  se,  but  it  simply 
affords  me  the  possibility  of  procuring  other  capital  in  lieu  of  that 


278  PRINCIPLES    OF    POLITICAL    ECONOMY. 

which  I  have  given  up.  Besides,  it  is  evident  that  whatever  use  I 
wish  to  make  of  this  bill  that  I  keep  in  my  safe,  whether  I  wish 
to  devote  it  to  the  payment  of  my  expenses  or  to  productive  pur- 
poses, I  shall  only  be  able  to  do  this  by  converting  this  paper  into 
objects  of  consumption  or  instruments  of  production  which  are 
already  in  the  market.  It  is  then  with  this  wealth  afforded  by 
nature,  not  with  these  bits  of  paper,  that  I  shall  produce  new 
wealth  or  merely  obtain  nutrition. 

Mr.  MacLeod  has  earned  special  distinction  as  advocate 
of  this  thesis,  that  credit  papers  constitute  real  wealth  and  actual 
capital.  He  is  logical  enough  in  his  conclusions,  for  he  defines 
wealth  as  "  everything  which  has  an  exchangeable  value."  Now 
as  credit  papers  have  incontestably  an  exchangeable  value,  they 
must  certainly  be  reckoned  as  wealth.  But  it  is  the  definition  that 
cannot  be  admitted.  If  every  credit  paper,  i.e.  if  every  claim,  were 
actually  wealth,  were  each  Frenchman  to  lend  his  fortune  to  his 
neighbor,  by  this  one  act  the  wealth  of  France  would  be  simultane- 
ously and  instantly  doubled ;  i.e.  would  rise  from  ^^8,000,000,000 
to  ;^i  6,000,000,000  sterling.  Mr.  MacLeod  insists  on  the  state- 
ment that  these  papers  at  least  represent  future  wealth.  No 
doubt ;  but  it  is  precisely  because  they  are  future  that  they  can 
serve  for  nofliing,  and  should  not  be  reckoned  as  existing  wealth. 
They  will  be  reckoned  as  soon  as  they  have  begun  to  exist.  Till 
that  time  there  will  always  be  this  difference  between  present  and 
future  wealth :  the  former  exists,  the  latter  does  not  exist.  We 
produce  and  live  by  means  of  existing ;  we  could  neither  live  nor 
produce  with  wealth  in  nubibus.  It  would  be  as  sensible  as,  when 
making  the  census  of  the  population  of  France,  to  add,  as  an 
earnest  of  the  future  members  of  society,  all  those  who  will  be  born 
twenty  years  hence  ! 

Yet,  though  credit  cannot  be  termed  productive,  in  the  sense 
that  it  does  not  create  capital,  nevertheless  it  renders  eminent 
services  to  production  in  the  following  manner  :  — 

Firstly,  by  utilizing  existing  capital  to  the  best  possible  advan- 
tage.    For  if  capital  could  not  pass  from  one  person  to  another. 


PRODUCTION.  279 

and  if  each  man  were  reduced  to  making  a  direct  use  of  what  he 
possessed,  an  enormous  amount  of  capital  would  lie  idle.  In  fact, 
in  all  civilized  societies  there  are  a  number  of  people  who  cannot 
work  their  own  capital : 

To  wit,  those  who  have  too  much  ;  for  as  soon  as  a  fortune  ex- 
ceeds a  certain  figure  it  is  not  easy  for  its  owner  to  obtain  the 
full  profit  from  it  by  his  unaided  strength,  without  taking  into 
consideration  the  circumstance  that  usually,  in  such  cases,  the 
possessor  has  no  inclination  to  make  such  an  effort : 

Those  who  have  tiot  enough ;  for  workmen,  peasants,  domestic 
servants,  who  make  small  savings,  cannot  of  themselves  produc- 
tively employ  such  tiny  capital.  Still,  when  once  these  savings 
are  combined,  they  may  make  hundreds  of  thousands  of  pounds  : 

Those  who,  by  reason  of  their  age,  their  sex,  or  their  profession, 
cannot  themselves  employ  their  capital  in  industrial  enterprises. 
This  is  the  case  with  minors,  women,  persons  who  have  devoted 
themselves  to  a  Hberal  profession,  such  as  lawyers,  doctors,  mili- 
tary men,  clergymen,  public  servants,  and  employes  of  all  classes. 

To  reverse  the  picture :  there  are  people  in  the  world,  such  as 
promoters,  inventors,  agriculturists,  nay,  even  workmen,  who  could 
easily  make  a  good  use  of  capital,  if  they  only  had  it.  Unfortu- 
nately they  have  not. 

But  if,  by  means  of  credit,  capital  can  pass  from  the  hands  of 
those  who  cannot  or  will  not  put  it  to  account  to  the  hands  of 
those  who  are  capable  of  employing  it  productively,  that  will  be 
of  great  profit  to  each  one  of  them,  and  to  the  whole  country. 
Now,  in  every  country,  we  can  count  by  millions  of  pounds  the 
value  of  capital  withdrawn  in  this  manner,  either  from  sterile 
hoarding  or  from  unproductive  consumption,  thus  fertilized  by 
credit. 

Secondly,  by  causing  the  formation  of  new  capital.  For  if  peo- 
ple were  unable  to  look  forward  to  the  employment  of  their  sav- 
ings in  loans,  many  persons,  especially  those  just  enumerated, 
would  no  longer  be  anxious  to  save,  no  possible  future  use  being 
open  to  them.     As  to  this  point,  see  further  on,  "  The  Conditions 


28o  TRINCIPLES    OF    POLITICAL    ECONOMY. 

Necessary  for  Saving."  In  fact,  credit  is  to  capital  what  exchange 
is  to  wealth.  We  have  previously  seen  that  by  transferring  wealth 
from  one  possessor  to  another,  exchange  certainly  does  not  create 
wealth,  but  none  the  less  utilizes  it  and  incites  to  its  production. 

Thirdly,  by  allowing  the  saving  of  a  certain  amount  of  metallic 
fnoncy.  This  function  of  credit  has  already  been  discussed  by  us 
at  length.     We  need  not  repeat  the  discussion  here. 

IV.    Banks. 

We  saw  above  that  exchange  of  commodities  was  scarcely  pos- 
sible without  the  aid  of  certain  middlemen  whom  we  call  traders. 
In  the  same  way  trade  in  capital  would  be  impossible  without  the 
assistance  of  certain  intermediaries  who  are  termed  bankers. 

Bankers  are  just  like  other  business  men.  Business  men  as  a 
class  deal  with  commodities ;  bankers  deal  with  capital,  in  the 
shape  either  of  credit  papers  or  of  coin.  The  former  buy  in  order 
to  sell  again,  and  make  their  profits  by  buying  as  cheaply  as  pos- 
sible to  sell  as  dearly  as  possible.  The  latter  borrow  in  order  to 
lend,  and  make  their  profits  by  borrowing  as  cheaply  as  possible 
in  order  to  lend  as  dearly  as  possible.  Here,  then,  are  the  two 
fundamental  operations  of  all  banking  business,  borrowing  and  lend- 
ing ;  and  as  these  borrowings  are  usually  effected  in  the  form  of 
deposits  and  these  loans  in  the  form  of  discounts,  they  are  gen- 
erally called  deposit  and  discount  banks. 

However,  there  is  a  third  operation  which  is  very  different  from 
the  other  two,  though  fundamentally  it,  too,  is  a  mode  of  borrow- 
ing. We  refer  to  the  issuing  of  bank  notes.  But  this  operation  is 
not  essential  to  banks ;  nay,  in  most  countries  it  is  an  exceptional 
and  privileged  function  which  belongs  only  to  certain  banks  which 
are  called  banks  of  issue. 

The  history  of  banks  is  closely  connected  with  the  history  of 
commerce  ever  since  the  Middle  Ages.  The  creation  of  each 
great  bank  marks  a  new  stage  of  commercial  development.  The 
first  banks  were  those  of  the  Italian  RepubUcs,  Venice  (?  1156) 


PRODUCTION,  28  r 

and  Genoa  (1407).  Commercial  pre-eminence  then  passed  to 
Holland,  and  we  come  to  the  great  and  celebrated  Bank  of  Am- 
sterdam (1609),  speedily  followed  by  those  of  Hamburg  and  Rot- 
terdam. Finally,  the  creation  of  the  Bank  of  England  in  1694 
teaches  us  that  that  nation  is  about  to  succeed  to  the  commercial 
supremacy  of  the  world.  The  Bank  of  France  did  not  rise  till 
much  later,  only  at  the  beginning  of  the  present  century.  Never- 
theless, in  1 716,  Law  had  founded  a  famous  bank,  the  sad  termi- 
nation of  which  is  well  known  to  all  the  world  .^ 

Let  us  now  examine  in  succession  these  three  different  opera- 
tions —  Deposits,  Discount,  and  the  Issuing  of  Notes. 

V.     Deposits. 

The  banker's  first  task  is  to  obtain  capital.  No  doubt  he  can 
make  use  of  his  own  capital  or  of  those  more  considerable  sums 
which  may  be  furnished  by  association,  and  which  in  our  great 
loan-societies  may  rise  to  some  thousand  millions  pounds  sterling. 
But  if  the  banker  carried  on  his  operations  only  with  his  own  pri- 
vate capital  or  that  of  the  association,  he  would  make  but  small 
profits  and  even  would  render  little  service  to  society:  we  shall 
soon  see  the  reason  for  this.  He  is  obliged,  then,  to  carry  on  his 
operations  by  means  of  the  money  of  the  general  public,  and  for 
that  reason  has  to  borrow  it  from  them.  (Many  large  banks  never 
use  their  own  capital  in  their  business  ;  they  invest  it,  either  in  real 
property  or  in  stock,  as  a  reserve  or  a  guarantee  to  their  clients. 
This  is  done  by  the  Bank  of  France.)  But  how  does  the  banker 
borrow  this  money  from  the  public  ?  Not  after  the  fashion  of  a 
government  or  a  corporation,  or  even  an  industrial  society,  which 
borrows  for  a  long  date,  in  the  shape  of  stocks,  debentures,  or 
shares,  the  capital  which  its  owners  seek  to  invest.  No ;  such  a 
mode  of  borrowing  demands  too  high  a  rate  of  interest  for  the 
banker  to  find  any  profit  on  such  transactions.     What  the  banker 

^  See  Dictionary  of  Political  Economy,  edited  by  R.  H.  Inglis  Palgrave, 
article  "  Banks  "  (1891).  —  J.  B. 


282  PRINCIPLES    OF    POLITICAL    ECONOMY. 

asks  from  the  public  is  that  circulating,  floating  capital  which  exists 
in  the  shape  of  coin  in  our  trousers-pockets  or  in  the  drawers  of 
our  safes.  In  every  country  there  is  to  be  found  in  this  form  a 
considerable  amount  of  capital,  which  is  in  nowise  fixed,  does  noth- 
ing, produces  nothing,  and  waits  for  the  moment  of  employment. 

The  banker  says  to  the  public,  "  Entrust  it  to  me  till  you  have 
found  some  employment  for  it.  I  will  keep  it  for  you,  and  will 
return  it  you  when  you  require,  at  the  first  demand.  While  you 
thus  wait  I  will  give  you  a  low  interest  on  it,  say  i|-  or  2  per  cent. 
This  will  be  always  more  than  it  produces  for  you  ;  for  whilst  it  is 
in  your  strong-box  it  yields  you  no  returns,  and  in  any  case  you 
will  avoid  the  trouble  and  anxiety  of  keeping  it.  Nay,  if  you  wish 
it,  I  will  do  you  the  service  of  being  your  banker,  of  collecting 
your  yearly  income,  cashing  your  coupons,  and  of  paying  your 
creditors,  according  to  the  instructions  you  give  us,  all  which  will 
be  very  convenient  to  you."  Where  this  language  is  heard  and 
understood  by  the  public,  bankers  can  obtain  in  this  way,  on  very 
easy  terms,  a  large  amount  of  capital,  by  draining,  so  to  speak, 
from  circulation,  the  coin  which  is  scattered  about  the  country. 
The  Journal  of  the  Statistical  Society  of  London  for  September, 
1884,  reckons  that  the  sum  total  of  the  deposits  thus  received 
by  the  banks  of  the  whole  world  amounted  to  ^2,508,000,000, 
;^965,ooo,ooo  of  which  were  for  England  and  her  colonies  com- 
bined. 

Sometimes,  however,  bankers  pay  no  interest  on  deposits.  Cer- 
tain banks,  such  as  the  Bank  of  England  or  the  Bank  of  France, 
refuse  to  give  any  interest,  for  they  consider  that  they  render  a 
sufficient  service  to  the  depositors  whose  money  they  receive ;  and 
no  doubt  they  are  right,  for  they  obtain  enormous  sums  on  deposit. 
A  step  further,  too ;  in  former  days,  the  deposit  banks,  those  time- 
honored  banks,  for  instance,  whose  names  we  gave  a  page  or  two 
back,  actually  demanded  interest  to  be  paid  them  by  the  depositors 
as  recompense  for  keeping  safely,  as  remuneration  for  services 
rendered. 

But  most  modern  banks  are  accustomed  to  give  their  depositors 


PRODUCTION,  283 

a  small  interest,  in  order  to  attract,  by  means  of  that  bounty,  the 
largest  possible  amount  of  deposits.  Naturally  enough,  the  in- 
terest is  a  little  higher  if  the  depositor  agrees  not  to  demand  back 
his  money  for  a  certain  period,  say  six  months,  a  year,  five  years,  etc. 
We  have  already  observed  more  than  once  that  in  England,  for 
example,  it  is  customary  for  wealthy  people  to  keep  no  money  in 
their  own  houses,  but  to  deposit  it  all  with  their  bankers.  If  they 
have  a  payment  to  make  to  a  tradesman  or  any  other  creditor, 
they  simply  send  this  creditor  to  receive  payment  at  their  banker's, 
by  giving  him  an  order  of  payment  drawn  up  on  a  sheet  detached 
from  a  note-book  with  perforations,  which  is  called  a  check.  This 
custom  is  beginning  to  become  universal  in  all  countries.  But  we 
should  note  that  the  check  is  not,  properly  speaking,  a  credit 
paper ;  it  is  an  order  to  pay  from  funds  which  the  banker  should 
have  in  hand  for  his  customer's  account. 

VI.     Discount. 

Once  that  this  floating  capital  has  been  borrowed  by  the  bank 
at  a  cheap  rate,  it  is  the  banker's  business  to  turn  it  to  account  by 
lending  it  to  the  public.  But  how  ?  The  banker  cannot  lend  it 
for  a  long  date,  say,  by  way  of  mortgage  or  of  advancing  funds  for 
a  sleeping-partnership  in  industrial  enterprises.  He  is  obliged  not 
to  forget  that  he  only  holds  this  capital  on  deposit ;  that  is  to  say, 
he  may  be  obliged  to  reimburse  it  at  a  moment's  notice ;  he  con- 
sequently can  only  let  it  out  of  his  sight  for  short-dated  transac- 
tions, which  merely  deprive  him  of  the  disposal  of  this  capital  for 
a  short  time,  and  which  therefore  in  some  measure  allow  it  to 
remain  within  his  grasp  and  beneath  his  eyes. 

What  loan  operation  can  fulfil  these  conditions  ? 

There  is  one  which  complies  with  them  admirably. 

When  a  merchant  has  sold  his  goods  for  deferred  payment, 
according  to  the  usage  of  commerce,  if  he  happens  to  have  need 
of  money  before  the  expiration  of  the  time,  he  turns  to  the 
banker.     The  latter  then  advances  the  merchant  the  sum  which  is 


284  PRINCIPLES    OF    POLITICAL   ECONOMY. 

due  to  him  for  the  sale  of  his  goods,  making  a  deduction  of  a  small 
sum  which  constitutes  his  profits,  and  receives  in  exchange  the 
claim  of  the  merchant  upon  his  purchaser,  i.e.  his  bill  of  exchange. 
The  banker  keeps  this  bill  of  exchange  in  his  safe,  and  on  the  day 
fixed  for  the  expiration  of  the  bill  he  sends  it  to  the  debtor  to  be 
exchanged  for  cash  ;  in  this  way  he  recoups  himself  for  the  capital 
he  had  advanced. 

The  above  process  is  what  is  called  discotmt.  It  is,  we  may  say, 
a  form  of  loan;  for  it  is  clear  that  the  banker  who,  in  return 
for  a  bill  of  exchange  for  ^^50,  payable  in  three  months,  advances 
to  the  merchant  ^48  5^,  to  receive  from  the  debtor  at  the  expir- 
ation of  the  bill  the  full  sum  of  ^50,  has  in  fact  lent  his  money 
for  a  period  .  of  three  months  at  an  interest  of  six  per  cent  or 
rather  more.  Moreover,  it  is  always  a  short-dated  loan ;  for  not 
only  are  the  bills  of  exchange  negotiated  by  the  bank  payable 
within  a  time  which  rarely  exceeds  three  months,  but  this  is  a 
maximum  which,  in  average  cases,  is  never  reached.  The  nego- 
tiators are  not  always  able  to  negotiate  their  bills  of  exchange  on 
the  day  after  they  have  been  sold  ;  they  may  have  to  keep  them 
docketed  for  some  time  :  it  is  even  possible  that  they  may  not  be 
called  upon  to  negotiate  them  till  the  eve  of  the  expiration  of  the 
bill.  At  the  Bank  of  France  the  average  period  during  which  bills 
of  exchange  are  kept  is  from  forty  to  forty-five  days.  It  is  therefore 
only  for  a  very  short  space  that  the  banker  deprives  himself  of  the 
money  he  has  received  on  deposit,  for  in  the  short  period  of  six 
weeks  on  the  average  every  shilling  which  has  left  returns  to  his  safe. 

It  would  be  difficult  to  find  a  loan  operation  which  better  com- 
plies with  the  exigencies  of  deposit.  Let  the  demands  for  re- 
imbursement of  deposits  be  grouped  together  during  a  period  of 
above  six  weeks,  and  the  banker,  thanks  to  his  own  cash  receipts, 
will  always  be  able  to  cope  with  the  demands.  Now  it  is  scarcely 
probable  that  these  demands  will  be  so  frequent,  at  any  rate  during 
normal  times. 

Still  we  must  not  conceal  the  fact  that  the  banker  has  certain 
risks  to  run.     If  all  the  depositors  were  to  arrange  to  come  and 


PRODUCTION.  285 

ask  for  their  money  on  one  and  the  same  day,  the  bank  would 
obviously  be  unable  to  satisfy  them,  for  their  money  is  at  that 
moment  here,  there,  and  everywhere.  True  enough,  it  will  speedily 
return  to  the  banker's  keeping,  but  there  is  always  this  difference 
between  capital  borrowed  by  the  bank  as  deposits  and  capital 
lent  by  it  as  discount :  The  former  can  always  be  demanded  back 
from  the  bank  at  a  moment's  notice,  whereas  it  can  only  ask  for 
the  latter ,  to  be  returned  at  the  end  of  a  fixed  period ;  and  that 
difference  is  enough,  at  any  particular  time,  to  cause  bankruptcy. 

But  is  this  problematical  danger  a  sufficient  reason  to  deter 
banks  from  making  use  of  the  capital  they  receive  on  deposit,  and 
to  oblige  them  to  keep  such  moneys  as  actual  deposits,  after  the 
fashion  of  the  old  banks  of  Venice  or  of  Amsterdam  ?  Certainly 
not.     Every  one  would  be  discontented. 

Firstly.  The  depositors  themselves ;  for  it  is  clear  that  if  the 
bank  was  compelled  to  keep  their  money  in  its  vaults  without 
employing  it,  instead  of  being  able  to  give  them  a  bonus  in 
the  form  of  interest,  it  would  be  the  bank  that  would  have  to 
require  the  payment  of  interest,  to  compensate  for  the  cost  of 
keeping.  It  is  better,  then,  for  the  depositors  to  run  the  risk 
of  having  to  wait  a  few  days  for  reimbursement,  than  to  hoard 
their  money  at  home  unproductively,  or  to  be  obliged  to  pay  for 
its  safe  keeping  elsewhere. 

Secondly.  Society,  too ;  for  the  social  utility  of  banks  consists 
in  combining  scattered  and  unproductive  capital  in  the  form  of 
coin,  so  as  to  make  out  of  it  active  and  productive  capital.  This 
social  function  would  evidently  disappear  from  the  moment  that 
banks  were  unable  to  make  use  of  their  deposits. 

Banks,  then,  do  not  hesitate  to  use  the  sums  confided  to  their 
charge ;  but  in  order  to  face  any  possible  demands  or  runs,  they 
are  always  careful  to  keep  a  certain  reserve. 

It  is  impossible  to  prescribe  a  priori  any  proportion  between 
the  amount  of  the  reserve  and  the  sum  total  of  the  deposits.  A 
bank's  reserve  should  always  be  the  larger,  the  slighter  its  credit 
and  the  more  numerous  its  large  deposits.    It  should,  in  particular, 


286  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Strengthen  its  reserve  during  commercial  crises,  on  the  advent  of 
the  issues  of  government  stock,  or  of  debentures,  —  in  a  word, 
under  all  circumstances  when  it  can  foresee  that  the  depositors 
will  require  their  money.  Contrary  to  the  usual  belief,  the  amount 
of  the  reserve  of  the  Bank  of  France  is  not  fixed  by  law.  It  might 
be  nil,  but  it  is  usually  excessive. 

However,  discount  is  not  the  only  way  in  which  banks  can  make 
use  of  their  capital.     They  lend  them  also  — 

Firstly.  In  the  shape  of  advafues  on  bills ;  i.e.  by  taking  in 
pledge  movable  property,  and  being  careful  that  the  sum  lent 
shall  be  sufficiently  lower  than  the  value  of  the  goods  or  stock- 
exchange  securities.  This  process  is  one  of  the  most  important 
lines  of  business  of  the  Bank  of  France. 

Secondly.  In  the  shape  of  credit  that  they  open  for  their  cus- 
tomers. When  they  have  a  running  account  with  it,  the  bank  can 
allow  them  to  withdraw  more  than  they  have  deposited ;  in  other 
words,  it  practically  gives  them  a  loan.  Still,  as  this  method  of 
loan  (lying  uncovered,  as  the  term  goes)  is  exceedingly  dangerous, 
and  presents  no  guarantees,  some  banks  refuse  to  practise  it.  It 
is  absolutely  forbidden  by  the  regulations  of  the  Bank  of  France. 

VII.    On  the  Issuing  of  Bank  Notes. 

As  with  all  other  business  men,  it  is  to  the  banker's  interest  to 
extend  his  operations  as  much  as  possible.  By  doubling  them,  he 
doubles  his  profits.     How  is  this  effected  ? 

The  banker  does  not  generally  find  it  difficult  to  find  a  use  for 
the  capital  he  holds.  There  are  always  plenty  of  people  who 
desire  to  borrow.  By  lowering  the  rate  of  discount  he  can  nego- 
tiate as  much  paper  as  he  wishes. 

But,  before  being  able  to  lend  capital,  a  prior  condition  is 
necessary ;  namely,  to  possess  capital.  There's  the  rub  !  In  fact, 
it  is  not  so  easy  to  find  lenders  as  it  is  to  meet  with  borrowers.  It 
is  necessary  that  the  public  should  bring  their  money  to  deposit, 
and  it  may  happen  that  they  are  not  very  eager  to  do  so. 


PRODUCTION,  287 

Now  if  the  banker  could  create  capital  de  novo  in  the  form  of 
coin,  instead  of  having  to  wait  patiently  till  the  public  is  willing 
to  bring  it  to  him,  nothing  would  prevent  him  from  extending  his 
operations  indefinitely. 

Some  bankers,  then,  conceived  the  ingenious  idea  of  thus 
creating  the  capital  they  needed  by  the  issue  of  simple  promises 
to  pay,  i.e.  bank  notes,  and  experience  has  proved  the  excellence 
of  the  device  by  its  perfect  success.  This  ingenious  invention  is 
attributed  to  Palmstruch,  who  founded  the  Bank  of  Stockholm  in 
1656.  It  is  true  that  the  Italian  and  Amsterdam  banks  issued 
many  notes,  but  these  merely  represented  the  money  the  bankers 
had  in  their  safes ;  in  other  words,  were  only  receipts  for  deposits. 

In  return  for  commercial  bills  which  are  presented  to  them 
to  discount,  the  banks,  instead  of  paying  in  money,  give  notes. 
But  it  may  be  asked,  How  is  the  public  brought  to  accept  this 
combination  ?  In  return  for  a  bill  of  exchange  which  he  comes 
to  have  discounted,  the  business  man  receives  merely  another 
credit  paper ;  that  is  to  say,  a  bank  note.  What  use  is  it  to  him  ? 
He  wants  money,  not  credit  papers ;  for  as  regards  paper  he 
might  just  as  well  have  kept  that  which  has  passed  into  his  own 
hands. 

It  is  enough  to  remark  that,  though  the  bank  note  is  really  only 
a  credit  paper,  just  like  the  bill  of  exchange,  yet  it  is  far  more 
convenient  paper. 

The  following  characteristics  differentiate  it  from  credit  papers, 
and  particularly  from  bills  of  exchange  :  — 

Firstly,  it  yields  no  interest,  not  a  whit  more  than  a  coin.  Its 
value,  therefore,  is  always  the  same  and  is  not  liable  to  vary 
according  to  the  distance  from  the  day  when  it  falls  due. 

Secondly,  it  is  transferable  to  bearer,  just  like  a  coin,  and  is  not 
subjected  to  the  formalities  and  responsibilities  of  endorsement. 
We  are  all  aware  that  the  transference  of  credits,  and  especially 
the  question  of  knowing  when  this  transfer  was  possible,  was  one 
of  the  most  delicate  questions  in  Roman  Law.  In  the  French 
Civil  Law  such  a  transference  is  still  subjected  to  somewhat  com- 


288  PRINCIPLES    OF    POLITICAL    ECONOMY. 

plicated  formalities.  Even  in  Commercial  Law,  though  these  for- 
malities have  been  simplified  as  much  as  possible,  it  is  still  neces- 
sary for  the  transference  of  a  commercial  bill  to  John  Smith  that 
the  lender  should  write  on  the  back,  "  Pay  to  the  order  of  John 
Smith,"  together  with  his  signature  and  the  date,  and  thus  himself 
becomes  liable  in  case  of  non-payment.  This  is  what  is  known  as 
endorsement. 

Thirdly^  it  is  payable  at  sight,  i.e.  at  any  time  whatsoever, 
whereas  a  commercial  bill  is  payable  only  at  a  specific  date. 

Fourthly,  it  is  always  payable  on  demand,  whereas  credit  papers 
are  payable  only  on  maturity. 

Fifthly,  it  is  for  a  round  sum,  thus  harmonizing  with  the  current 
money  systems,  ten  pounds  or  one  thousand  francs  or  fifty  dollars, 
whereas  other  credit  papers,  which  represent  commercial  transac- 
tions, usually  involve  fractional  amounts. 

Sixthly.  Lastly,  it  is  issued  and  signed  by  a  well-known  bank, 
the  name  of  which  is  usually  familiar  to  every  one,  even  to  those 
of  the  public  who  are  not  versed  in  commercial  matters ;  for  in- 
stance, the  Bank  of  France  or  the  Bank  of  England ;  whilst  the 
names  of  the  signatories  of  bills  of  exchange  are  scarcely  known 
except  by  those  persons  who  deal  with  them. 

Observe,  however,  that  when  the  particular  promise  to  pay  is 
destined  to  circulate  like  a  bank  note,  the  solvency  of  the  debtor 
is  not  so  keenly  scrutinized  as  when  it  is  a  bill  intended  to  be 
docketed,  such  as  a  certificate  of  stock,  a  share,  or  a  debenture. 
Indeed,  this  holder  for  a  day  has  no  need  to  trouble  as  to  future 
solvency :  his  affair  is  merely  present  solvency. 

All  the  above  considerations  cause  the  bank  note  to  be  really 
accepted  by  the  public  as  ready  money  and  to  become  pure  paper 
money.  In  France  and  England,  too,  the  bank  note  is  also  legal 
tender,  just  as  gold  pieces  and  the  five-franc  silver  piece ;  but  we 
must  not  fall  into  the  common  error  of  comparing  legal  tender 
with  forced  currency.^     A  bill  is  legal  tender  when  creditors  or 

1  It  is  impossible  to  reproduce  the  play  upon  words  of  the  original,  "  cours 
legal  itS.  zoMxs  force."  —  Translator's  note. 


PRODUCTION.  289 

sellers  cannot  refuse  it  in  payment.  A  bill  has  forced  currency 
when  holders  have  not  the  right  to  demand  from  the  bank  its 
reimbursement  in  cash.  Forced  currency  always  presupposes  legal 
tender,  but  the  reciprocal  does  not  hold  good.  Bank  notes  are 
legal  tender  in  France  and  in  England,  but  they  do  not  possess 
forced  currency.  Every  one  is  obliged  to  accept  them,  but  every 
one,  if  he  likes,  can  have  them  cashed  by  the  bank. 

It  is  obvious,  now,  that  banks  must  derive  great  benefit  from 
the  issuing  of  notes.  On  the  one  hand  it  provides  them  with  the 
resources  necessary  for  indefinitely  extending  their  operations,  but 
within  those  limits  that  prudence  dictates,  and  which  we  will  exam- 
ine presently.  On  the  other  hand,  this  capital  which  they  obtain 
in  the  shape  of  notes  is  far  more  profitable  to  them  than  what 
they  receive  as  deposits ;  for  the  latter,  as  we  have  seen,  costs 
them  one  or  two  per  cent  interest,  whereas  the  former  merely 
costs  the  expenses  of  manufacture,  which  are  of  no  importance. 

But  we  must  not  conceal  the  fact  that,  though  this  operation 
may  give  bankers  splendid  profits,  it  is  also  capable  of  causing  them 
serious  dangers.  For  the  sum  total  of  notes  in  circulation  which 
can  at  any  moment  be  presented  for  reimbursement  represents  a 
debt  which  is  immediately  payable,  on  demand,  just  as  the  capital 
resulting  from  deposits.  Consequently,  the  bank  is  henceforward 
exposed  to  a  twofold  peril :  it  has  to  meet  at  the  same  time  the 
reimbursement  of  its  deposits  and  the  cashing  of  its  notes. 

If  the  necessity  of  a  reserve  forced  itself  upon  bankers,  when 
they  had  only  to  meet  the  reimbursement  of  deposits,  a  fortiori  is 
it  felt  when  to  the  debt  payable  at  sight,  resulting  from  its  de- 
posits, is  added  this  further  debt  that  amounts  to  the  sum  of  the 
notes  the  bank  has  in  circulation. 

Unfortunately,  as  money  that  lies  idle  in  cellars  gives  no  profits, 
the  self-interest  of  banks  pushes  them  to  reduce  their  reserve  to 
the  minimum,  and  they  find  it  difficult  to  resist  the  temptation. 
If  the  Bank  of  France,  for  instance,  was  a  private  bank  and  was 
exempt  from  the  rigorous  provisions  of  the  law,  it  is  certain  that 
the  shareholders  would  protest  energetically  against  the  locking 


290  PRINCIPLES    OF    POLITICAL    ECONOMY. 

up  of  its  two  millions  of  francs  in  hard  money,  and  would  clamor 
for  their  employment  as  discount  or  in  any  other  lucrative  manner. 

VIII.    The  Differences  between  the  Bank  Note  and  Paper 

Money. 

Bank  notes  and  paper  money  resemble  one  another  so  closely 
that  the  public  scarcely  understands  the  difference  between  them. 
Both  of  them  stand  for  money ;  but  the  bank  note  possesses  three 
charactistics,  or  rather  presents  three  guarantees,  which  are  absent 
from  paper  money. 

Firstly.  In  the  first  place  and  above  all,  the  bank  note  is  always 
payable  in  cash,  i.e.  convertible  into  specie,  at  the  holder's  will, 
whereas  paper  money  is  not.  The  latter,  indeed,  has  the  appear- 
ance of  being  a  promise  to  pay  a  certain  sum,  and  the  holder  may 
entertain  the  hope  that  one  day  or  other  the  State,  when  in  better 
circumstances,  will  reimburse  the  value  of  its  paper  ;  but  this  more 
or  less  distant  prospect  (in  Russia,  in  truth,  it  has  not  been  real- 
ized for  over  a  century)  scarcely  affects  those  who  receive  these 
notes  and  have  no  intention  of  keeping  them. 

Secondly.  Again,  the  bank  note  is  issued  in  the  course  of  com- 
mercial transactions,  and  only  to  the  extent  necessitated  by  those 
operations,  —  e.g.  for  an  equal  value  (less  discount)  to  that  of  bills 
of  exchange  which  are  presented  for  discounting,  —  whereas  paper 
money  is  issued  by  the  government  for  the  purpose  of  meeting  its 
expenses,  and  this  emission  has  no  other  limits  or  rules  than  the . 
financial  necessities  of  the  moment. 

Thirdly.  Finally,  as  the  name  itself  shows,  the  bank  note  is 
issued  by  a  bank,  that  is  to  say,  by  a  company  which,  though  per- 
haps called  a  government  bank  or  a  public  bank,  is  none  the  less 
a  company  whose  principal  object  is  the  carrying  on  of  business 
transactions  ;  whereas  paper  money  is  issued  by  a  government. 

Thus  the  bank  note  is  very  distinct  from  paper  money.  Still  it 
may  sometimes  approach  remarkably  close  to  the  latter,  through 
losing  all  or  some  of  the  characteristics  described  above. 


PRODUCTION.  291 

Firstly.  It  may  happen  that  the  bank  note  may  have  forced 
currency,  i.e.  be  no  longer  payable  in  cash,  at  any  rate  for  a  longer 
or  a  shorter  period.  This  occurs  at  times  of  crisis  for  the  notes  of 
almost  all  the  great  banks. 

In  that  case  there  still  remain  between  the  bank  note  and  paper 
money  the  two  other  differences  we  have  pointed  out,  particularly 
the  second  one.  The  quantity  issued  is  neither  unlimited  nor  fixed 
in  an  arbitrary  manner.  It  is  always  regulated  by  the  actual  needs 
of  commerce.     That  is  a  powerful  guarantee. 

Secofid/y.  It  may  happen  that  the  bank  note  not  only  receives 
forced  currency,  but  that,  instead  of  being  issued  to  supply  com- 
mercial transactions,  it  is  issued  merely  for  the  purpose  of*  making 
advances  to  the  government,  and  of  enabling  it  to  pay  its  expenses. 
This  is  how  the  affair  is  usually  managed.  The  government  needs 
money.  It  says  to  the  bank,  "  Make  us  some  hundred  million 
notes,  which  you  must  lend  us,  and  we  will  cover  you  by  granting 
them  forced  currency." 

In  this  case  the  second  guarantee  disappears.  The  emission  of 
notes  has  then  no  other  limit  than  the  necessities  of  the  govern- 
ment, and  in  such  circumstances  we  must  confess  that  the  bank 
note  remarkably  resembles  paper  money. 

This  is  just  what  occurred  during  the  Franco-German  War  of 
1870.  The  French  government  borrowed  from  the  Bank  of 
France,  by  various  instalments,  a  total  sum  of  ;^5 8,800,000,  but 
its  first  step  was  to  declare  them  forced  currency. 

Still,  even  in  such  cases  as  this,  the  third  difference  subsists, 
and  it  of  itself  is  enough  to  render  the  bank  note,  even  under  these 
conditions,  far  less  subject  to  depreciation  than  is  paper  money. 
This  has  been  so  thoroughly  proved  by  experience  that  States  usu- 
ally abandon  the  right  of  directly  issuing  paper  money,  and  have 
recourse  to  the  intermediary  services  of  banks.  For  the  public 
thinks  that  the  bank  will  resist  as  long  as  possible  any  exaggerated 
issue  of  notes  that  may  be  attempted  to  be  forced  on  it,  since  that 
is  the  road  to  ruin.  The  public  also  believes,  and  unfortunately 
not  without  reason,  that  the  solicitude  of  a  financial  company, 


292  PRINCIPLES    OF    POLITICAL    ECONOMY. 

which  has  to  guard  its  own  moneys,  is  more  vigilant  and  more 
tenacious  than  that  of  a  government  or  financial  minister  which  has 
only  to  look  to  the  interests  of  the  State. 

IX.    The  Rate  of  Exchange. 

The  safes  of  all  great  banking  houses,  at  any  rate  of  those 
whose  operations  extend  abroad,  are  crammed  with  bundles 
of  TdIIIs  of  exchange,  payable  at  all  places  in  the  world.  They 
stand  for  effects  worth  many  million  pounds,  and  are  the  object  of 
a  very  active  trade.  They  are  called  paper  on  London,  paper  on 
New  l^ork,  etc.,  according  to  the  place  at  which  the  paper  is 
payable. 

The  bankers  who  hold  them  and  who  deal  in  them  are  clearly 
nothing  but  middlemen.  We  must  ask  then,  from  whom  do  they 
buy  such  goods,  and  to  whom  they  sell  them? 

First  of  all,  from  whom  do  the  French  bankers  buy  them? 
From  those  who  produce  them,  that  is  to  say,  from  all  those  per- 
sons who,  for  one  reason  or  another,  are  creditors  of  foreigners ; 
e.g.  from  French  merchants  and  producers  who  have  sold  goods 
to  foreigners,  and  who,  on  the  conclusion  of  the  sale,  have  drawn 
a  bill  of  exchange  on  their  purchaser  in  London  or  New  York. 
If  it  happens  that  the  merchant  needs  money  before  the  bill  be- 
comes due,  or  merely  if  he  finds  it  inconvenient  to  send  Iws  bill 
abroad  to  be  settled,  he  will  pass  it  on  to  his  banker,  who  will  buy 
it  from  him ;  I  mean,  will  discount  it  for  him. 

To  whom,  now,  do  the  bankers  sell  it?  To  all  who  need  it, 
and  they  are  a  numerous  class.  This  paper  is  much  in  demand 
with  all  persons  who  have  payments  to  make  abroad  ;  e.g.  French 
merchants  who  have  bought  goods  from  foreign  houses.  If  they 
have  not  been  able  to  make  the  seller  draw  a  bill  on  them,  they 
will  be  obliged  to  send  in  cash  the  sum  total  of  the  price  right 
away  to  the  residence  of  their  creditor ;  but,  if  they  are  able  to 
obtain  paper  payable  on  the  place  where  their  creditor  live?,  they 
have  then  a  far  easier  and  less  costly  mode  of  setthng  their  debts. 


PRODUCTION.  293 

It  would  appear  that  this  paper  ought  to  be  sold,  or  negotiated, 
as  the  phrase  goes,  for  a  price  that  is  always  equal  to  the  sum  of 
money  it  gives  the  right  of  obtaining.  Thus  a  bill  of  exchange 
for  ;^ioo  ought  to  be  worth  ^100,  neither  more  nor  less.  As  a 
matter  of  fact,  nothing  of  the  sort  happens.  It  is  obvious  that 
important  conditions  which  cause  the  value  of  the  paper  to  vary 
are  the  amount  of  confidence  reposed  in  the  signature  of  the 
debtor,  and  the  nearness  or  distance  of  the  date  when  the  bill 
falls  due.  But,  even  after  abstracting  these  self-evident  causes 
of  variation,  even  supposing  that  the  paper  is  payable  at  sight 
and  above  suspicion,  still  its  value  will  vary  every  day  according 
to  the  oscillations  of  supply  and  demand,  just  as  the  value  of 
any  other  commodity.  These  variations  are  what  are  called  the 
rate  of  exchange,  which  is  quoted  in  the  papers  like  the  Bourse 
(Stock  Exchange)  rate. 

It  is  easy  to  understand  what  is  meant  by  supply  and  demand 
as  applied  to  commercial  bills.  Let  us  suppose  that  the  claims 
of  France  abroad,  whether  for  her  exports  or  for  any  other  cause, 
amount  to  ^^40,000,000.  Let  us  further  suppose  that  the  debts 
of  France  abroad,  whether  for  her  imports  or  for  any  other  cause, 
amount  to  ;^8o,ooo,ooo.  It  is  probable  that  there  will  not  be 
enough  paper  for  all  who  require  it,  for  the  supply  cannot  exceed 
;^40,ooo,ooo,  and  the  demand  may  rise  to  _;^8o,ooo,ooo.  All 
people,  therefore,  who  require  this  paper  to  settle  their  accounts, 
will  bid  highly  for  it.  Foreign  paper  will  rise  in  value,  that  is  to 
say,  a  bill  of  ;!^ioo,  payable  in  Brussels  or  in  Rome,  will,  in- 
stead of  being  sold  for  ;^ioo,  be  sold  for  ;^i02  or  ^105. 
Thus,  as  the  term  goes,  it  will  be  above  par ;  i.e.  will  rise  to  a 
premium. 

The  business  of  measuring  and  quoting  these  variations  in  the 
rate  of  exchange  has  been  raised  to  the  height  of  a  science.  The 
unit  usually  taken  for  the  bill  of  exchange  is  a  hundred  monetary 
units,  —  francs,  dollars,  roubles,  marks,  florins,  etc.,  —  and  the  ques- 
tion is  to  discover  whether  the  quoted  price  is  less  or  higher  than 
the  nominal  value.  For  instance,  let  there  be  a  bill  of  exchange 
on  Hamburg  for   100  marks:   as  the  mark  is  worth   i   franc   22 


294  PRINCIPLES    OF    POLITICAL    ECONOMY. 

centimes,  the  nominal  value  of  this  bill  is  122  francs.  Still,  in 
the  exchange  on  London  the  unit  taken  is  the  one-pound  bill  of 
exchange,  the  actual  value  of  which  in  French  money  is  25  francs 
22  centimes.  The  exchange  on  London,  therefore,  is  at  par  every 
time  that  on  the  Paris  Bourse  paper  on  London  is  quoted  at  25 
francs  22  centimes. 

Now  let  us  look  at  the  converse.  If  we  suppose  that  the  claims 
of  France  abroad  rise  to  ;^8o,ooo,ooo  sterling,  whilst  the  debts 
contracted  abroad  by  France  only  reach  ;,^40,ooo,ooo,  it  is 
probable  that  paper  will  be  superabundant,  for  there  will  be 
;^8o,ooo,ooo  to  dispose  of  and  the  settlement  of  the  exchanges 
will  absorb  only  ;!^40,ooo,ooo.  A  great  number  of  bills,  then, 
cannot  be  negotiated  and  can  be  only  utilized  by  being  sent 
abroad  to  be  cashed.  Bankers,  therefore,  will  strive  to  get  rid  of 
such  papers  by  disposing  of  them  even  below  their  actual  value. 
Thus  the  hundred-pound  bill  on  Brussels  will  be  disposed  of  at 
99^8  or  99.5  ;  i.e.  it  will  fall  below  par. 

Every  time  that  in  any  country,  say  France,  paper  payable 
abroad  is  quoted  above  par,  the  exchange  is  said  to  be  unfavor- 
able to  this  country,  France,  as  regards  specie.  What  does  this 
mean  ?  That  the  price  of  the  paper  is  unfavorable  to  the  buyers  ? 
No ;  for  then  we  should  have  to  say  that  this  rate  is  favorable  to 
the  sellers.  The  meaning  is  that  the  rate  of  exchange,  under 
these  conditions,  shows  that  the  claims  France  holds  abroad  are 
not  sufficient  to  balance  her  debts  contracted  abroad,  that  conse- 
quently, to  settle  the  difference,  she  will  have  to  send  abroad  a 
certain  quantity  of  coin.  The  rise  in  the  rate  of  exchange,  other- 
wise called  dearness  of  foreign  paper,  presages,  as  an  infallible 
symptom,  a  going  out  of  coin,  and  therefore  we  use  the  expression 
"  unfavorable  exchange." 

Inversely,  whenever  in  France  foreign  paper  is  quoted  below 
par,  the  exchange  is  said  to  be  favorable  to  France,  and  the  train 
of  reasoning  is  the  same.  The  fall  in  the  price  of  foreign  paper 
shows  that  when  all  reckonings  have  been  made,  the  balance  is  to 
the  credit  of  France,  and  is  therefore  followed  by  entries  of  coin. 


PRODUCTION.  295 

No  doubt  we  must  not  use  these  words  "favorable"  and  "un- 
favorable "  in  an  absolute  sense,  for  we  know  that  the  fact  of  a 
country  having  to  send  much  coin  abroad,  or  to  receive  it  there- 
from, constitutes  neither  a  great  peril  nor  a  great  advantage, 
and  that  in  any  case  the  circumstance  is  merely  temporary. 
But  from  the  banker's  point  of  view  this  situation  is  of  very  great 
importance,  for  if  money  has  to  be  sent  abroad,  it  will  be  taken 
from  the  chests  of  the  banks.  All  the  premonitory  signs,  therefore, 
are  of  capital  importance  to  bankers,  and  they  always  keep  their 
eyes  fixed  on  the  rate  of  exchange,  just  as  sailors  watch  the 
barometer.  (See  the  next  section,  "The  Raising  of  the  Rate  of 
Discount.") 

Still,  we  must  observe  'that  variations  in  the  price  of  paper  are 
confined  within  far  narrower  limits  than  are  those  of  ordinary 
commodities.  This  price,  at  any  rate  during  normal  periods,  save 
for  the  exceptions  about  to  be  noted,  is  never  quoted  either 
much  above  or  much  below  par.  This  fact  is  explained  by  two 
reasons. 

Firstly.  Why  does  the  business  man,  who  is  a  debtor  of  the 
foreigner,  seek  for  bills  of  exchange?  Merely  to  save  the  expenses 
of  sending  over  coin.  But,  as  soon  as  it  becomes  clear  that  the 
premium  he  would  have  to  pay  to  obtain  the  bill  is  higher  than 
the  cost  of  transporting  coin,  he  would  no  longer  have  any  reason 
for  buying.  For  their  part,  too,  the  merchant  who  is  a  creditor  of 
the  foreigner,  and  the  banker  who  acts  as  middleman,  only  seek 
to  negotiate  these  bills  of  exchange  to  avoid  the  trouble  of  having 
to  send  them  abroad  to  be  cashed,  and  the  subsequent  carriage  of 
the  coin.  But  clearly,  rather  than  sell  these  bills  at  a  low  price, 
the  merchant  or  banker  would  prefer  the  above  cumbrous  method 
of  procedure.  To  sum  up,  as  the  trade  in  paper  money  has  no 
other  aim  than  to  serve  to  economize  the  cost  of  transporting  coin, 
it  is  easy  to  understand  that  this  trade  will  cease  to  have  any  raison 
d'etre  as  soon  as  it  becomes  more  expensive  for  the  parties 
concerned  than  the  direct  sending  of  coin ;  i.e.  as  soon  as  the 
variations  in  price,  whether  above  or  below  par,  exceed  the  cost 


296  PRINCIPLES    OF    POLITICAL    ECONOMY. 

of  carriage.  Now  these  expenses,  even  with  insurance  thrown  in, 
are  extremely  small ;  extremely  small,  therefore,  must  also  be  the 
variations  in  the  rate  of  exchange. 

Secondly.  But  these  variations  are  limited  by  another  cause, 
which  at  one  and  the  same  time  is  more  remote  and  more  subtle. 
Let  us  suppose  that  the  price  of  the  foreign  bill  of  exchange  rises 
above  par,  i.e.  that  the  merchant  who  has  drawn  upon  his  foreign 
buyer  a  bill  for  ^100  can  sell  it  for  ;^iii.  It  is  clear,  then,  that 
those  j[\,\\  are  so  much  added  to  his  profits  on  the  sale.  Instead 
of  gaining  10  per  cent,  as  he  perhaps  expected,  he  gains  11  per 
cent.  These  additional  profits  for  all  those  who  have  sold  abroad 
will  induce  a  large  number  of  merchants  to  follow  their  example  ; 
in  other  words,  "  the  rise  in  the  rate  of  exchange  acts  as  a  pre- 
mium on  exportation." 

For  instance,  after  the  war  of  1870  the  exports  of  France 
increased  enormously  for  several  years.  Why?  Because,  the  huge 
payments  that  the  French  had  to  make  to  Germany  having  caused 
foreign  paper  to  rise  greatly  above  par,  the  profits  that  exporters 
obtained  from  the  paper  they  drew  on  their  foreign  debtors  were 
such  that  they  could  content  themselves  with  an  extremely  small 
profit  on  the  price  of  their  goods,  and  could,  if  necessary,  sell 
them  at  a  loss.  Thus  the  French  had  come  to  sell  to  the  foreigner, 
less  in  order  to  gain  on  the  price  of  the  goods  than  to  gain  on  the 
price  of  the  bill. 

Now,  in  direct  ratio  to  the  increase  of  exports  will  be  the  mul- 
tiplication of  the  bills  of  exchange  to  which  they  give  rise,  and  the 
value  of  these  bills,  according  to  the  general  law  of  supply  and 
demand,  will  fall  progressively,  until  it  has  descended  below  par. 

Inversely,  if  the  paper  falls  below  par,  it  is  easy  to  prove  by  the 
same  reasoning  that  this  depreciation  will  entail  a  loss  on  the  mer- 
chants who  have  sold  goods  abroad,  and  nail  consequently  tend 
to  reduce  exports,  and  then  by  reaction  to  reduce  the  supply  of 
foreign  paper,  until  its  vahrc  has  risen  again  to  par. 

In  the  whole  matter  there  is  nothing  more  than  the  ordinary 
mechanism  of  supply  and  demand,  which,  whenever  the  value  of 


PRODUCTION.  297 

a  commodity  is  disturbed  from  its  equilibrium,  tends  to  bring  it 
back  to  that  position,  either  by  an  increase  or  by  a  restriction 
of  production. 

Nevertheless,  this  general  law  produces  in  this  instance  a  very 
curious  effect,  the  consequences  of  which  are  very  important  from 
the  point  of  view  of  international  trade.  Whenever  the  balance 
of  trade  is  unfavorable  to  a  country,  i.e.  when  its  imports  exceed 
its  exports,  the  resulting  rise  in  the  rate  of  exchange  tends  to 
reverse  the  position,  and  to  make  the  balance  of  trade  favorable 
by  increasing  exports  and  reducing  imports.  The  rate  of  exchange, 
then,  constantly  acts  on  trade  like  those  regulators  of  steam- 
engines,  which  always  tend  to  restore  the  velocity  of  the  engine 
to  a  state  of  equilibrium,  and  a  variation  of  a  few  pence  is  thus 
enough  to  restore  to  equilibrium  balances  which  amount  in  value 
to  many  thousand  millions  sterling. 

We  said  that  in  exceptional  cases  the  rate  of  exchange  may  vary 
in  considerable  and  even  unlimited  proportions.  Here  are  the 
circumstances  :  -*- 

Firstly.  When  the  place  on  which  the  paper  is  payable  is  very 
distant,  or  the  means  of  communication  with  it  are  difficult,  as  the 
cost  of  sending  coin  is  much  larger,  the  variations  in  the  price  of 
bills  of  exchange  will  also  be  far  more  marked.  Paper  on  Khar- 
toum or  even  on  Samarkand  will  certainly  be  accepted,  even  if  the 
taker  has  to  pay  10  or  12  per  cent  above  its  nominal  value, 
and,  reciprocally,  it  will  always  be  to  the  creditor's  interest  to 
negotiate  it,  even  at  10  or  12  per  cent  below  par. 

Secondly.  But  it  is  especially  when  we  are  dealing  with  a  coun- 
try whose  money  is  depreciated,  that  the  variations  in  the  rate  of 
exchange  may  become  excessive  and,  relatively  speaking,  un- 
bounded. Here  is  a  bill  of  exchange  on  St.  Petersburg  for  100 
roubles;  the  real  value  at  par  would  be  400  francs  (^16),  the 
rouble  being  worth  4  francs.  Yet,  if  we  consult  the  rate  of  ex- 
change, we  shall  see  that  paper  on  St.  Petersburg  (July,  1890)  costs 
286  francs,  or  a  huge  depreciation  of  30  per  cent.  How  could  it 
be  otherwise?     Such  is  exactly  the  depreciation  of  the  money 


298  PRINCIPLES    OF    POLITICAL    ECONOMY. 

current  in  Russia,  the  paper  rouble,  and  naturally  a  bill  payable  in 
that  money  must  undergo  an  equal  depreciation. 

It  is  enough,  then,  to  read  the  rates  of  exchange,  even  if  we 
have  no  other  acquaintance  with  the  economic  and  financial  state 
of  the  different  countries,  to  be  able  to  perfectly  understand  their 
situation,  and  to  divine  whether  they  buy  more  than  they  sell,  or 
sell  more  than  they  buy,  whether  their  currency  is  depreciated, 
and  what  is  the  exact  amount  of  that  depreciation. 

Thirdly.  Whenever,  for  one  cause  or  another,  the  debtor  finds  it 
hard  to  obtain  money,  —  either  because  his  credit  is  limited  or  be- 
cause the  banks  make  difficulties  about  discounting  for  him,  —  the 
rate  of  exchange  may  rise  greatly  above  par.  For  example,  after 
the  payment  of  the  five  milliards  war  indemnity  to  Germany, 
France,  as  is  easily  seen,  had  some  trouble  in  obtaining  that  enor- 
mous ransom,  and  the  French  government,  in  order  to  extricate 
itself,  sought  everywhere  for  paper  on  Germany,  or  even  on  Lon- 
don, in  order  to  pay  by  way  of  arbitrage ;  in  consequence  the  rate 
of  exchange  on  Germany  and  even  on  London  for  long  continued 
to  be  above  par. 

This  arbitrage  is  only  a  more  complicated  operation  of  exchange. 
Here  is  the  explanation.  It  is  not  only  at  Paris  that  paper  on 
London  is  to  be  found ;  it  is  obtainable  at  all  the  commercial  cen- 
tres of  the  world.  If,  then,  it  is  too  dear  at  Paris,  an  attempt 
may  be  made  to  find  a  place  where,  in  consequence  of  different 
circumstances,  it  is  cheaper.  Now  this  operation,  which  consists 
in  buying  paper  where  it  is  cheap  to  sell  it  again  where  it  is  dear, 
is  what  is  called  ai'bitrage.  It  produces  the  interesting  effect  of 
extending  through  all  countries  facilities  of  payment  by  means  of 
compensatio.  For  dearness  of  paper  points  to  a  place  where  debts 
exceed  credits,  the  former  of  which,  consequently,  cannot  be 
liquidated  by  means  of  compeyisatio  alone.  But  by  the  aid  of 
the  paper  which  the  practisers  of  arbitrage  seek  to  obtain  abroad 
(which  they  seek  for  in  places  that  are  in  the  converse  position,  i.e. 
where  claims  exceed  debts,  for  there  only  can  the  paper  be  got 
cheap),  equilibrium  can  be  re-established  and  the  sum-total  of 
debts  can  be  settled  by  way  of  compensatio. 


PRODUCTION.  299 

X.    The  Raising  of  the  Rate  of  Discount. 

There  is  one  case  in  which  banks  are  hable  to  have  to  reimburse 
a  great  quantity  of  their  notes ;  viz.  whenever  they  have  to  make 
considerable  payments  abroad.  As  these  payments  must  be  made 
not  in  notes,  but  only  in  coin,  the  bank  will  be  applied  to  to  con- 
vert the  notes  into  specie. 

If,  after  a  bad  harvest,  some  million  hundredweight  of  com  have 
to  be  bought  abroad,  a  large  sum  of  money,  amounting  to  a  good 
many  millions  sterling,  will  have  to  be  sent  to  America  or  Russia, 
and  the  bank  may  be  certain  that  the  larger  part,  if  not  the  whole, 
of  this  sum  will  be  fetched  from  its  chests.  As  we  have  seen,  the 
safe-rooms  of  the  bank  are  the  reservoir  in  which  accumulates  the 
largest  portion  of  the  floating  capital  of  the  country  in  the  shape 
of  coin,  and  the  only  one  that  can  be  drawn  on  in  cases  of 
urgency.  Such  a  situation  may  be  dangerous  for  the  bank,  if  its 
reserve,  especially  of  gold,  is  not  very  large.  Happily,  it  receives 
prior  warning  of  this  situation  by  a  sign  which  is  safer  than  that 
given  by  the  barometer  to  the  sailor  or  by  the  "  manometer  "  to 
the  mechanician,  —  in  a  word,  by  the  rate  of  exchange.  Thus,  if 
the  exchange  becomes  unfavorable,  i.e.  if  foreign  paper  is  negoti- 
ated above  par,  that  is  a  proof  that  the  debtors  who  have  payments 
to  make  abroad  are  very  numerous,  far  more  numerous  than  those 
who  have  payments  to  receive,  and  that  consequently,  inasmuch 
as  the  balance  cannot  be  settled  by  means  of  compensatio,  coin 
must  be  sent  abroad  to  make  up  the  difference  (see  a  few  pages 
back).  Now  that  the  danger  has  been  perceived,  the  bank  can 
take  its  precautions. 

To  guard  against  this  eventuality  of  too  heavy  cash  payments, 
it  must  take  the  measures  necessary  either  for  increasing  the  re- 
serve or  for  diminishing  the  quantity  of  its  fiotes  in  circulation,  the 
latter  of  which  comes  to  the  same  thing  as  the  former,  and  is  more 
easily  executed.  For  the  bank,  in  truth,  cannot  increase  its  reserve, 
but  it  can  refuse  to  issue  any  more  notes,  i.e.  it  can  refuse  to  make 
any  more  loans  to  the  public  in  the  shape  of  advances,  or  as  dis- 


300  PRINCIPLES    OF    POLITICAL    ECONOMY. 

count,  by  which  two  modes  we  are  aware  that  the  bank  issues  notes. 
It  is  clear  that  such  a  course  of  action  would  achieve  the  desired 
end ;  for,  on  the  one  hand,  the  issue  of  notes  being  stopped,  the 
quantity  already  in  circulation  would  not  be  increased.  On  the 
other  hand,  the  commercial  bills  docketed  at  the  bank  successively 
falling  due  would  each  day  cause  the  return  of  a  considerable 
quantity,  either  of  notes,  which  would  proportionately  diminish 
their  circulation,  or  of  coin,  which  would  proportionately  increase 
the  reserve.^ 

The  quantity  of  notes  in  circulation  can  be  compared  to  a  cur- 
rent of  water  which,  entering  by  one  tap  and  leaving  by  another, 
is  constantly  renewed.  The  flow  of  notes  enters  into  circulation 
by  the  "  issuing  "  tap,  i.e.  by  discount,  and  leaves  circulation  to 
return  to  the  bank  by  the  tap  of  "  entries."  If  the  bank  closes 
the  issuing  tap  while  leaving  the  other  open,  it  is  obvious  that  cir- 
culation will  speedily  be  completely  dried  up. 

Let  us  suppose  that  the  bank  holds  commercial  bills  to  the  value 
of  ^40,000,000  sterling,  that  its  reserve  amounts  to  ;^40,ooo,ooo 
in  coin,  and  that  its  notes  in  circulation  come  to  the  figure  of' 
^,^80,000,000.  In  such  circumstances  it  is  clear  that  if,  in  con- 
sequence of  any  unforeseen  event,  holders  of  notes  were  to  come 
to  have  these  changed  for  coin,  the  bank  would  be  unable  to  do 
so.  But,  if  it  has  reason  to  fear  any  such  danger,  its  only  step  is 
to  stop  all  discounting  for  the  future.  The  actual  way  in  which 
matters  are  done  is  as  follows  :  As  the  bills  of  exchange,  which 
it  holds,  successively  fall  due,  it  is  bound  to  receive  a  sum  of 
;;^40,ooo,ooo,  coming  in  day  by  day  from  that  moment,  till  ninety 
days  hence  at  the  latest.  After  that  time  what  will  be  its  position  ? 
If  these  ^^40,000,000  have  been  paid  in  coin,  its  reserve  in  coin  will 

1  It  is,  of  course,  to  be  remembered  that  advances  may  be  made  without 
notes  being  issued,  and  therefore  may  be  stopped  without  notes  being  called 
in.  See  Professor  Dunbar  on  "  Deposits  as  Currency,"  Harvard  Quarterly 
Journal  of  Economics,  July,  1887,  and  the  paper  by  Mr.  Inglis  Palgrave  on 
"Note-circulation"  read  to  the  Manchester  Statistical  Society,  March,  1887. 
-J.B. 


PRODUCTION.  301 

then  be  _;^8o,ooo,ooo,  or  the  very  figure  of  its  notes.  In  that  case 
it  will  have  nothing  to  fear.  If  the  ^40,000,000  have  been  paid  in 
notes,  then  its  notes  in  circulation  will  be  only  ^40,000,000,  the 
precise  amount  of  its  reserve.  In  that  case,  too,  it  need  have  no 
apprehensions.  If  the  ;^40,ooo,ooo  have  been  paid  half  in  coin 
and  half  in  notes,  then  its  reserve  will  have  been  increased  to 
^60,000,000,  and  its  notes  in  circulation  reduced  to  ^60,000,000. 
Again  there  would  be  nothing  to  fear,  and  the  same  with  all  other 
conceivable  combinations. 

Nevertheless,  this  complete  stoppage  of  all  advances  and  of  all 
discounting  would  be  too  radical  a  measure.  On  the  one  hand, 
by  suppressing  all  credit  it  would  cause  a  terrible  crisis  in  the 
country ;  on  the  other  hand,  it  would  damage  the  bank  itself,  by 
putting  an  end  to  its  operations  and  sharing  its  profits.  But  the 
bank  could  bring  about  the  same  result,  though  in  smaller  propor- 
tions, by  merely  restricting  the  amount  of  its  advances  and  of  its 
discountings ;  for  that,  it  is  enough  either  to  raise  the  rate  of  dis- 
count, or  to  be  more  diffident  as  to  accepting  paper  presented  to 
be  discounted,  by  refusing  paper  which  falls  due  at  too  remote  a 
date  or  the  signature  on  which  does  not  appear  to  be  sufficiently 
reliable. 

It  is  scarcely  necessary  to  say  that  this  measure  is  not  highly 
agreeable  to  the  business  public,  and  this  disagreeable  feeling  is 
heightened  by  the  fact  that  the  step  being  taken  just  at  the 
moment  when  there  is  need  of  coin,  money  is  rendered  more 
difficult  to  obtain.  Nay,  the  bank  may  often  be  accused  of  having 
provoked  a  crisis,  and  such  a  complaint  may  be  well  founded. 
It  is  certainly  a  heroic  remedy,  but  in  spite  of  that  it  is  certainly 
the  step  that  best  suits  the  situation,  and  a  prudent  bank  should 
not  hesitate  to  resort  to  it  to  defend  its  reserve.  It  is  called  "  turn- 
ing the  screw."     Its  efficacy  has  been  fully  shown  by  experience. 

Not  only  is  it  beneficial  to  the  bank,  by  warding  off  the  blow 
which  menaces  it,  but  it  is  also  salutary  to  the  country,  by  favor- 
ably modifying  its  economic  situation. 

Take  a  country  which  is  obUged  to  make  considerable  remit- 


302  PRINCIPLES    OF    POLITICAL    ECONOMY. 

tances  abroad.  The  rise  in  the  rate  of  discount,  effected  jii  the 
fitting  time,  reverses  its  position,  by  rendering  it  the  creditor  of 
the  foreigner  for  large  sums,  and  consequently  provokes  an  influx 
of  gold  from  abroad,  or  at  any  rate  prevents  the  efflux  of  the 
country's  money.     This  is  how  matters  pass  :  — 

The  first  result  of  the  rise  of  the  rate  of  discount  is  a  deprecia- 
tion of  all  commercial  paper.  The  same  bill  of  exchange  for 
;^iooo,  which  was  negotiated  for  ;£^']o  when  discount  was  3  per 
cent,  will,  now  that  the  rate  of  discount  is  7  per  cent,  be  nego- 
tiated for  only  ^930 ;  that  is,  a  depreciation  of  more  than  4  per 
cent.  Henceforward  bankers  of  all  countries,  those  who  practise 
arbitrage,  will  not  be  slow  in  coming  to  purchase  this  paper  in 
France,  since  it  is  cheap,  and  they  will  thus  become  debtors  of 
France  for  the  sum  total  of  the  moneys  they  have  devoted  to  these 
purchases. 

The  second  result  is  the  depreciation  of  all  stock  exchange 
securities.  Every  financier  knows  that  the  stock  exchange  is 
greatly  affected  by  the  rate  of  discount,  and  that  a  rise  in  dis- 
count nearly  always  entails  a  fall  in  stocks ;  for  stock  exchange 
securities  (especially  those  that  are  called  international,  because 
they  are  quoted  on  the  principal  European  exchanges)  do  duty 
for  commercial  paper,  and  therefore  share  its  fate.  If  you  have 
a  payment  to  make  in  London,  the  simplest  thing  to  do  is  to 
obtain  commercial  paper  payable  in  London,  but,  that  failing,  you 
can  equally  well  make  use  of  Italian  Debt  coupons,  Lombard  Rail- 
way debentures,  Ottoman  Bank  bonds,  etc.,  which  are  also  payable 
in  London.  Business  men  who  cannot  turn  their  commercial 
paper  into  cash,  or  can  only  do  so  at  a  heavy  loss,  try  to  obtain 
ready  money  by  selling  their  stock.  But  just  as  the  fall  in  the 
value  of  paper  incites  demands  from  foreign  bankers,  so,  too,  a 
fall  in  stock  exchange  securities  causes  numerous  purchases  by 
foreign  capitalists,  and  under  this  head  the  country  in  question, 
say  France,  again  becomes  the  creditor  of  the  foreigner  for  the 
large  sums  spent  in  these  purchases. 

Finally,  if  the  rise  in  discount  is  great  and  sufficiently  prolonged, 


PRODUCTION.  303 

it  will  bring  about  a  third  result,  a  fall  i?t  the  prices  of  commodi- 
ties. Business  men  who  are  in  need  of  money  begin  by  procuring 
it  through  negotiating  their  commercial  paper.  That  resource 
failing  or  becoming  too  expensive,  they  turn  to  all  the  stocks  they 
have  in  their  desks  (that  is  to  say,  if  they  have  any),  and  finally, 
if  they  are  at  the  end  of  their  tether,  to  obtain  money  they  must 
realize,  i.e.  sell  the  goods  they  have  in  stock ;  hence  a  general  fall 
in  prices.  But  this  fall  produces  the  same  effect  as  the  preceding 
falls,  and  on  a  larger  scale  ;  i.e.  it  incites  purchases  by  the  foreigner, 
and  consequently  increases  the  exports  of  France,  and  therefore 
makes  her  the  creditor  of  the  foreigner. 

We  may  sum  up  all  these  effects  by  saying  that  the  raising  of 
the  rate  of  discount  creates  a7i  artificial  scarcity  of  money.  We 
call  it  artificial,  but  it  matches  a  reality,  or  at  least  an  eventuality 
which  tends  to  become  realized,  viz.  the  flight  of  coin  to  foreign 
parts.  The  disease  is  cured  on  homoeopathic  principles,  similia 
similibus.  This  scarcity  of  money  may  cause  a  general  fall  in  all 
stock,  —  an  evil,  no  doubt,  —  but  it  also  provokes,  as  a  conse- 
quence, considerable  demands  from  abroad,  and  hence,  remittances 
of  money  therefrom,  which  is  a  benefit,  and  the  very  remedy  that 
suits  the  situation. 

XI.     Some  Special  Forms  of  Credit. 

There  are  three  of  these,  in  particular,  which  have  been  the 
objects  of  innumerable  studies,  and  which  have  given  rise  to 
various  institutions,  i.e.  Land  Banks,  Agricultural  Banks,  and 
People's  Banks. 

I.    "Credit  Fonder." 

In  order  to  become  productive,  present-day  agriculture  needs 
larger  and  larger  capital ;  but  landed  proprietors  do  not  always 
possess  such  capital  and,  through  this  lack,  they  do  not  draw  from 
their  land  all  the  profit  that  they  should.  It  would  therefore  be 
highly  desirable,  both  in  their  interests  and  in  the  interests  of  the 
community,  that  they  should  be  able  to  find  the  capital  necessary 


304  PRINCIPLES    OF    POLITICAL   ECONOMY. 

for  drawing  the  full  value  from  their  land.  This  they  should  obtain 
from  the  credit  fonder  ("Landed  Credit"  or  "Land  Banks"), 
which,  if  well  organized,  ought  to  furnish  the  desired  capital. 

The  simplest  and  most  ancient  form  of  credit  on  land  is  the 
loan  on  mortgage.  From  the  lender's  point  of  view,  it  presents 
a  great  advantage  which  has  always  made  it  much  sought  after 
by  capitalists ;  viz.  its  almost  absolute  security,  land  being  a 
pledge  which  can  neither  perish  nor  be  stolen.  The  sum  total 
of  mortgages  on  land  in  the  whole  of  France  is  reckoned  to 
amount  to  between  ^520,000,000  and  ;^5  60,000,000  sterling,  or 
15  or  16  per  cent  of  the  total  value  of  all  the  landed  property  in 
France.     In  some  countries  the  two  amounts  are  almost  equal. 

However,  to  counterbalance  this  advantage,  the  mortgage  sys- 
tem has  great  disadvantages  for  both  of  the  parties ;  for  the 
borrower,  because  he  is  burdened  with  excessively  high  charges, 
the  rate  of  interest  being  rarely  less  than  5  per  cent,  whilst  the 
income  derived  from  agricultural  improvements  is  often  inferior 
to  this  rate  ;  for  the  lender,  also,  because  although  loan  on  mort- 
gage gives  him  full  security  for  his  money,  it  does  not  enable  him 
to  recover  it  easily.  It  is  no  simple  matter  to  find  any  one  to 
take  up  his  claim,  and  even  when  the  term  has  expired,  he  is  too 
often  obliged  to  resort  to  a  measure  which  is  as  disagreeable  for 
the  creditor  as  it  is  lamentable  for  the  debtor ;  viz.  eviction. 

To  remedy  this  disadvantage  a  proposal  has  been  made  to 
render  mortgage  credits  negotiable  by  means  of  endorsement,  just 
as  commercial  claims  and  bills  ;  and  this  system,  which  has  been 
sometimes  incorrectly  called  mobilization  of  landed  property,  has 
been  ingeniously  organized  in  some  countries.  Thus  in  Germany 
the  proprietor  can  of  himself  lay  on  his  land  mortgages  which  hei 
negotiates  according  to  his  requirements,  just  as  a  banker  who 
draws  checks  on  his  own  account.  In  Australia,  under  the  work- 
ing of  the  Torrens  Act,  mortgages  can  be  just  as  easily  transferred. 
For  further  details,  see  M.  Challamel  On  the  Modes  of  Mobilizing 
Landed  Property,  M.  Worms,  etc. 

It  must  be  observed  that  this  remedy  only  affects  the  creditor, 


PRODUCTION.  305 

and  does  not  improve  the  position  of  the  debtor,  i.e.  the  proprie- 
tor. Further,  it  is  exceedingly  doubtful,  as  regards  the  mortgage- 
holding  creditor  himself,  whether  any  system,  however  ingenious 
it  may  be,  would  allow  him  to  negotiate  this  claim  as  if  it  were  a 
commercial  bill :  that  is  contrary  to  the  nature  of  things.  A  claim 
on  mortgages  will  always  participate  to  a  certain  degree  in  the 
nature  of  the  land  on  which  it  is  a  lien. 

Another  still  more  ingenious  system  consists  in  the  institution 
of  banks  of  a  special  nature,  which  are  usually  called  "  Land 
Banks"  (Societ^s  du  Credit  Foncier).  These  play  the  part  of 
middlemen  between  capitalists  and  proprietors ;  they  borrow 
money  from  the  former  to  lend  it  to  the  latter,  and,  although,  as  is 
obvious,  they  do  not  perform  this  service  for  nothing,  yet  they  offer 
certain  important  advantages  for  both  parties.  To  the  capitalist 
they  supply  claims  which  are  solid  as  mortgage  claims,  inasmuch 
as  they  have  the  same  guarantee,  which  can  be  far  more  easily 
negotiated,  since  the  pledge  is  not  such  and  such  a  particular 
])iece  of  land,  but  the  whole  body  of  the  funds  of  the  society.  For 
it  is  the  society  itself,  i.e.  usually  speaking  a  powerful  company, 
which  issues  the  credit  papers,  and  they  circulate  as  readily  as 
certificates  of  government  stock  or  as  shares  or  debentures  in 
railway  companies.  To  land  proprietors  they  afford  a  triple  ad- 
vantage :  firstly,  a  loan  payable  at  a  distant  date,  for  example 
seventy-five  years ;  secondly,  a  reimbursement  which  is  effected 
little  by  little  and  in  an  almost  imperceptible  manner  by  way  of 
annuity;  and  thirdly,  usually  by  a  relatively  moderate  rate  of 
interest. 

In  France  there  is  only  one  society  of  this  kind,  and  it  has 
piaintained  a  monopoly  since  1852,  under  the  name  of  the  "  Credit 
Foncier  de  France."  This  great  corporation  lends  for  a  period 
of  seventy-five  years.  The  interest  is  not  much  less  than  5  per 
cent,  but  this  rate  comprises  an  annuity,  which  is  calculated  to 
redeem  the  capital  within  a  period  of  seventy-five  years,  so  that 
at  the  expiration  of  the  term  the  landed  proprietor  is  freed  of  all 
debt,  having,  meanwhile,  paid  a  smaller  interest  than  would  have 


306  PRINCIPLES    OF    POLITICAL    ECONOMY. 

been  asked  by  an  ordinary  creditor.  In  spite  of  these  ingenious 
combinations,  the  "Credit  Foncier  "  has  not  been  able  to  render 
very  great  services  to  agriculture  ;  the  sum-total  of  the  capital 
lent  by  it  arises,  indeed,  to  the  imposing  figure  of  nearly  jQi20,- 
000,000  sterling,  but  the  greater  part  of  this  has  been  employed 
in  building,  and  hardly  a  quarter  has  gone  to  country  property. 

Without  professing  to  lay  down  a  general  principle,  we  do  not 
think  that  it  is  highly  desirable  to  make  the  means  of  borrowing 
easier  either  for  the  small  or  for  the  large  lando\vner :  such  a 
facility  might  bring  him  luck  once,  but  might  ruin  him  ten  times 
oftener.  Following  an  inverse  tendency,  we  should  be  inclined 
rather  to  demand  the  adoption  of  certain  measures,  such  as  the 
Homestead  Laws  in  the  United  States,  which,  by  preventing  a 
landowner  from  borrowing,  insure  to  him  and  his  family  the  safe 
possession  of  his  land. 

In  virtue  of  this  law,  every  American  proprietor  who  cultivates 
his  land  himself,  can  declare  exempt  from  seizure  his  house, 
together  with  a  certain  extent  of  land  round  it,  this  varying 
according  to  the  particular  laws  of  the  respective  States.  Some- 
times, too,  this  exemption  is  not  optional  and  is  obligatory,  and  it 
appears  to  us  that  it  can  only  be  efficacious  under  the  latter  cir- 
cumstance. Of  course  the  proprietor  is  debarred  from  finding 
credit,  at  any  rate  within  the  limits  of  his  homestead.  A  proposal 
has  recently  been  made  to  introduce  this  law  into  England  and 
into  France ;  its  aim  is  easy  to  understand,  viz.  the  conservation 
of  the  family  hearth,  and  the  continuance  of  small  proprietor- 
ship.^ 

2.    Agricultural  Credit. 

At  first  sight  agricultural  credit  seems  closely  to  resemble  landed 
credit,  for  the  object  of  both  is  to  supply  funds  to  landowners. 
Still,  it  differs  from  the  latter  in  a  clear  enough  way,  —  in  its  eco- 
nomic aims,  its  legal  character,  and  the  form  of  the  institutions 
which  represent  it. 

1  The  followers  of  Le  Play  arc  probably  in  view.  —  J.  B, 


PRODUCTION.  307 

Its  aim  is  to  obtain  for  landowners,  not  precisely  the  capital 
which  is  necessary  for  their  starting  expenses,  but  the  floating  capi- 
tal which  is  required  for  the  working  expenses  of  cultivation.  For 
it  is  in  the  nature  of  the  agricultural  industry  only  to  give  returns 
at  the  end  of  the  year,  or  sometimes  less  often,  while  the  expenses 
last  throughout  the  year.  The  agriculturist,  therefore,  continually 
needs  advances,  and  it  is  these  advances  that  agricultural  credit 
can  supply. 

Its  guaranties  are  not  the  land  itself,  as  is  the  case  with  Landed 
Credit,  but  the  working  stock  ;  its  only  pledges  are  the  raw  mate- 
rial, the  cattle,  and  the  crops  when  once  they  have  been  got  in ; 
to  speak  legally,  it  is  a  loan  on  movable  and  not  on  immovable 
property. 

In  Germany  and  in  Italy,  agricultural  credit  is  organized  under 
the  form  of  Mutual  Loan  Societies,  between  landowners  who  make 
loans  one  with  another,  and  thus  avail  themselves  of  the  credit 
given  them  by  this  association  to  obtain  loans  from  third  parties 
on  advantageous  terms.  The  most  famous  of  these  societies  are 
what  are  known  as  Raiffcisen  Banks^  and  are  of  somewhat  recent 
date ;  their  characteristic  features  are  :  firstly,  that  the  members 
contribute  no  share  to  the  society  —  it  is  therefore  formed  without 
capital ;  secondly,  they  receive  no  profits ;  thirdly,  they  are  all 
jointly  responsible  on  the  security  of  all  their  effects. 

In  France,  however,  agricultural  credit  is  represented  by  no 
special  institution,  though  such  have  frequently  been  talked  of; 
in  truth,  there  are  none,  and  we  only  partially  regret  this  lack, 

3.    People's  Banks. 

The  well-known  proverb,  "  Only  the  rich  receive  loans,"  is  easily 
verified  every  day.  Yet  the  poor  also  may  have  need  of  credit 
even  more  than  the  rich.     But  how  can  they  obtain  it? 

The  problem  is  most  easily  solved  by  means  of  association. 
An  isolated  laborer  or  an  artisan,  however  honest  and  laborious 

1  See  English  Blue  Book  on  the  "  System  of  Co-operation  in  Foreign  Coun- 
tries."    (^Coinincrcial,  No.  20,  1886)  pp.  36  and  63. — J.  B. 


308  PRINCIPLES    OF    POLITICAL    ECONOMY. 

we  may  suppose  him  to  be,  cannot  offer  a  lender  a  substantial 
guarantee,  for  want  of  work,  or  death  may  at  any  moment  defeat 
the  best  intentions.  But  if  these  workmen  or  artisans  are  lo,  loo, 
or  looo  in  number,  then  being  united  in  a  sheaf,  and  bound  to- 
gether by  the  constraining  bond  of  a  joint  obhgation,  they  will 
present  a  broader  surface,  and  can  easily  obtain  credit  without 
resorting  to  the  tender  mercies  of  usurers.  Besides,  their  indi- 
vidual contributions,  however  small  they  be,  from  their  very  num- 
ber constitute  a  substantial  enough  common  fund  which  they  can 
lend  to  one  another. 

It  is  especially  in  Germany,  under  the  inspiration  of  Schulze 
Delitzsch,  a  man  whose  name  will  always  be  attached  to  this  insti- 
tution, that  these  people's  hanks,  otherwise  called  co-operative  loan 
societies,  have  undergone  an  extraordinary  development.  More 
than  2000  of  these  banks  are  reckoned  to  exist  in  Germany,  but 
there  are  no  more  than  about  900  (the  most  important,  it  is  true) 
the  results  of  which  are  known.  In  1887  they  had  a  capital  of 
their  own  of  more  than  ;^6,6oo,ooo  sterling,  and  a  borrowed  capi- 
tal of  ^20,520,000.  Thus  they  could  operate  with  a  total  capital 
of  ;^2  7,000,000  to  ;^28, 000,000.  They  borrowed  at  3.81  per 
cent;  they  lent  to  their  own  members  at  5.5  per  cent,  and  also 
shared  amongst  them,  in  the  shape  of  dividends,  the  profits  thus 
realized. 

In  France,  however,  in  spite  of  several  brilliant  attempts  (in 
particular  the  "  people's  banks  "  founded  by  Father  Ludovic  de 
Besse),  this  institution  has  never  succeeded.  Once  more  we  find 
an  easy  consolation.  Certainly  such  an  institution  may  render  some 
services  to  a  particular  class  of  society,  such  as  small  artisans  and 
small  shopkeepers ;  all  those,  indeed,  who  work  on  their  own 
account.  But  it  has  not  great  possibilities  as  regards  the  wage- 
receiving  laborers,  i.e.  the  bulk  of  the  working  classes ;  therefore 
the  name  "  popular  "  credit  is  not  particularly  well  chosen.  Usu- 
ally, when  workmen  resort  to  credit,  it  is  to  consume,  not  to  pro- 
duce wealth  ;  what  would  they  do  with  capital,  since  they  are  not 
called  upon  to  work  on  their  own  account  ?     At  the  most,  a  few 


PRODUCTION.  309 

of  them  might  be  enabled  to  obtain  the  advances  necessary  for 
rising  from  being  wage-receivers  to  the  position  of  small  employ- 
ers. This  is  clearly  shown  by  the  example  of  the  German  credit 
societies.  Among  their  members,  workmen,  properly  so-called, 
are  only  in  the  proportion  of  about  8  per  cent ;  small  working 
artisans,  traders,  and  shop-keepers  amount  to  57  per  cent;  small 
farmers,  to  2  7  per  cent ;  the  rest  are  clerks,  domestic  servants, 
and  people  of  small  but  independent  means. 

THE  QUESTION   OF  MONOPOLY  OR   OF  LIBERTY  OF  BANKING. 

The  question  before  us  is,  ought  the  legislator  to  interfere  in 
the  organization  of  banks,  especially  as  regards  the  issuing  of 
notes,  and  if  he  does  so,  within  what  limits  and  in  what  manner? 

We  may  consider  this  under  two  aspects,  or  rather,  the  question 
becomes  subdivided  into  two  questions :  — 

Firstly.  Ought  the  legislator  to  reserve  for  one  bank  alone 
the  privilege  of  issuing  notes,  or  should  the  right  be  thrown  open 
to  all  who  care  to  use  it?  This  is  the  question  of  monopoly  versus 
competition. 

Secondly.  Ought  the  legislator  to  allow  banks  (whether  one  or 
several  matters  nothing)  to  issue  notes  ad  libitum,  or  should  this 
right  be  submitted  to  certain  restrictions?  This  is  the  question 
of  what  is  called  the  currency pri?iciple  versus  \hQba7iki?ig principle. 

I.    On  Monopoly  or  Competition  in  the  Issuing  of  Notes. 

Both  systems  and  all  the  intermediate  systems  are  in  use  in 
various  countries. 

In  France,  monopoly  is  the  rule.  Every  one  knows  the  great 
establishment  which  bears  the  name  of  the  Bank  of  France,  and 
is  aware  that  it  alone  has  the  right  of  issuing  bank  notes. 


3 10  TRINCIPLES    OF    POLITICAL    ECONOMY. 

A  digression  on  the  Bank  of  France  may  be  not  uninteresting. 

The  Bank  of  France  was  founded  by  Napoleon  while  he  was 
yet  First  Consul.  It  was  actually  founded  in  1 800,  but  its  privi- 
lege of  issuing  notes  dates  only  from  1803.  Even  then  it  could 
only  exercise  that  privilege  in  Paris  and  in  towns  where  it  had 
established  branches ;  and  consequently  other  banks  in  the  chief 
provincial  towns  received  the  same  privilege.  But  from  the  Revo- 
lution of  1848,  when  these  departmental  banks  were  merged  in  the 
Bank  of  France,  it  has  enjoyed  the  exclusive  privilege,  which  has 
already  been  several  times  renewed  for  periods  of  thirty  years,  and 
expires  in  1897.  According  to  a  bill  proposed  by  the  government, 
the  monopoly  is  to  be  again  renewed  till  1920. 

However,  the  Bank  of  France  is  by  no  means  a  government 
institution.  It  is  a  joint-stock  company,  like  any  other  company  ; 
but  instead  of  being  merely  administered  by  its  shareholders,  it 
has  a  governor  and  a  deputy-governor,  who  are  nominated  by  the 
State.  In  exchange  for  its  privilege  of  issuing  notes  it  is  subjected 
to  certain  special  obligations. 

Firstly.  It  is  only  permitted  to  discount  bills  of  exchange  bear- 
ing three  signatures,  and  drawn  for  ninety  days  after  date  at  the 
latest. 

Secondly.     It  is  not  allowed  to  give  interest  on  its  deposits. 

Thirdly.  It  can  make  advances  on  stocks  and  securities,  or 
on  bullion  ;  but  it  is  not  allowed  to  be  "  uncovered  "  in  its  running 
accounts  with  its  customers,  except  with  the  government.  To 
the  latter,  on  the  other  hand,  it  is  obliged  to  make  large  advances. 

Fourthly.  It  cannot  issue  notes  to  a  larger  amount  than  3,500,- 
000,000  francs. 

These  obligations  do  not  seem  to  be  imperatively  necessary, 
and  they  might  probably  be  done  away  with  without  serious  incon- 
venience. On  the  other  hand,  there  is  one  obligation  that  might 
very  well  be  laid  upon  it :  the  bank  should  have  to  share  its  profits 
with  the  State,  above  a  certain  fixed  limit.  This  clause  requiring 
sharing  of  profits  is  already  inserted  in  the  charters  of  French 
railway  companies ;  it  holds  good  for  the  Belgian  and  German 


PRODUCTION.  311 

banks.  For  it  is  just  that  every  privilege  should  be  paid  for ; 
and  no  happier  means  of  payment  could  be  found  than  that 
the  State,  i.e.  society  as  a  whole,  should  share  the  profits  accruing 
from  that  privilege.  According  to  the  bill  referred  to  above,  the 
bank  will  have  to   pay  the  government  yearly  a  fixed  sum  of 

;;^I00,000. 

To  return  to  the  banking  systems  in  vogue  in  various  countries. 
Contrary  to  the  example  of  France,  the  United  States  adopts  the 
rr.ethod  of  competition.  Every  bank  can  issue  notes,  provided 
that  it  complies  with  certain  conditions  presently  to  be  enu- 
merated. As  a  matter  of  fact,  there  are  upwards  of  2,000  banks 
that  exercise  this  right. 

In  England  the  system  is  a  mixed  one,  and  is  somewhat  com- 
p'.icated.  The  Bank  of  England  has  no  exclusive  privilege  for  the 
issuing  of  its  notes,  save  in  London,  for  there  are  several  hundred 
provincial  banks  which  also  issue  notes.  Still,  the  system  is  not 
one  of  free  competition,  for  the  number  of  note-issuing  banks  is 
definitely  limited.  Those  alone  can  enjoy  the  privilege  which 
already  exercised  the  right  in  1844,  the  date  of  a  famous  law  as 
to  the  organization  of  banks,  which  established  the  present  situa- 
tion, and  was  due  to  the  initiative  of  Sir  Robert  Peel.  Moreover, 
these  private  banks  are  not  immortal ;  for  they  are  destined  to 
disappear  one  day  or  other,  and  thenceforward  the  Bank  of  Eng- 
land will  possess  the  monopoly,  de  facto  as  well  as  de  jure.  In- 
deed, the  number  of  provincial  banks  which  issue  notes  has  greatly 
diminished  since  1844. 

It  is  impossible  in  this  place  to  pass  under  review  the  organiza- 
tion of  banks  in  all  countries ;  the  reader  is  referred  for  further 
details  to  the  works  of  Walter  Bagehot,  Mr.  Goschen,  and  Sir 
John  Lubbock. 

Now,  which  are  we  to  prefer  of  all  these  systems  ?  The  prin- 
cipal argument  advanced  in  favor  of  competition  is  the  classic 
argument  that  monopoly  produces  dearness,  whilst  competition 
causes  cheapness.  If  the  Bank  of  France  had  not  the  privilege, 
so  it  is  said,  the  rate  of  discount  would  be  lower,  and  the  advan- 


312  PRINCIPLES    OF    POLITICAL    ECONOMY. 

tages  to  be  drawn  from  credit  by  commerce  and  industry  would 
consequently  be  considerably  greater. 

It  may  be  replied  to  this,  that  it  is  by  no  means  proved  that 
competition  necessarily  means  cheapness,  or  monopoly  dearness. 
To  that  economic  principle  there  are  numerous  exceptions,  even 
in  the  production  of  certain  commodities,  and  in  this  particular 
case  the  principle  is  of  very  doubtful  appHcation.  For  experi- 
ence does  not  appear  to  show  that  where  there  is  a  multiplicity  of 
banks  discount  is  lowest. 

Moreover,  we  might  reply  that  the  argument  here  advanced  is 
beside  the  question;  for  the  subject  of  monopoly  or  competition 
is  not  here  discussed  with  regard  to  banks  in  general,  nor,  :n 
particular,  to  discount.  No  one  denies  the  right  of  every  bank 
to  discount ;  not  only  is  competition  here  de  jure,  but  it  exis:s 
de  facto  in  every  country,  even  in  France.  Not  only  private 
banks,  but  powerful  companies  with  immense  capital,  compet? 
with  the  Bank  of  France  in  discounting  as  well  as  in  every  other 
banking  operation.  Thus  for  the  last  eight  years  the  rate  of  dis- 
count of  the  Bank  of  France  has  rarely  exceeded  three  per  cent, 
which  is  below  that  of  the  Bank  of  England. 

We  are  here  only  concerned  with  the  question  of  the  issuing  of 
notes.  Now,  in  this  question  commerce  as  a  whole  is  far  less 
interested  than  is  the  general  public,  and  the  only  system  to  be 
preferred  is  that  which  offers  most  guarantees  to  the  public,  i.e. 
which  gives  most  stability  to  the  value  of  the  bank  note.  In  the 
eyes  of  the  public  the  bank  note  is  merely  money.  Now,  when 
we  speak  of  the  issuing  of  money,  no  one  clamors  for  free 
competition.  The  State  reserves  to  itself  the  right  of  coinage  ; 
if  the  State  does  not  exercise  this  right,  too,  as  regards  the  bank 
notes,  it  is  perfectly  justified  in  delegating  it  in  some  fashion  or 
other  to  a  single  establishment  which  possesses  its  own  and  public 
confidence. 

Regarded  from  this  point  of  view  the  Bank  of  France  note  has 
proved  its  mettle.  For  ninety  years  past,  even  in  the  most  dan- 
gerous crises,  it  has  never  fallen  below  par.     There  is,  therefore, 


PRODUCTION,  313 

for  France  at  least,  no  serious  reason  whatever  to  hand  over  to 
free  competition  the  issuing  of  bank  notes,  and  the  recent  renewal 
of  the  privilege  raised  scarcely  any  opposition. 

Further,  even  granting  that  a  multiplicity  of  banks  does  not 
always  involve  a  depreciation  of  the  notes,  still  it  causes  a  highly 
inconvenient  diversity  of  moneys,  unless  recourse  is  had  to  a  sort 
of  syndicate,  as  in  Switzerland,  or  unless  the  State  requires  a  uni- 
form type  of  note,  as  in  the  United  States.  On  the  other  hand, 
there  is  reason  to  hope  that,  with  a  small  number  of  great  national 
banks,  we  might  perhaps  arrive  at  an  international  hank  ?iote, 
possessing  currency  in  all  countries,  which  would  be  the  realization 
of  a  long-sought  ideal,  an  universal  money. 

II.    As  to  Liberty  or  Regulation  in  the  Issuing  of  Notes. 

Whatever  opinion  we  may  adopt  as  to  the  question  of  monopoly 
or  competition,  a  further  question  remains  :  Ought  the  issuing  of 
notes  by  these  banks  (whether  one  or  many)  to  be  left  free,  or 
ought  it  to  be  regulated  ? 

But,  first  of  all,  is  it  within  the  power  of  the  legislator  to  insure 
the  payment  of  bank  notes,  and  is  there  any  system  of  regulation 
which  can  guarantee  it? 

Three  plans  have  been  suggested,  and  all  of  them  have  been 
tried  in  different  countries. 

Firstly.  The  first  consists  in  requiring  a  certain  proportion 
betiveen  the  sum  total  of  the  reserve  and  the  amount  of  notes  in 
circulation.  This  is  what  is  called  the  currency  principle,  the 
principle  of  regulated  circulation,  in  opposition  to  the  banking 
principle,  or  principle  of  the  liberty  of  banks,  which  we  will 
investigate  presently. 

This  is  the  regime  that  was  laid  on  the  Bank  of  England  by  the 
famous  Act  of  1844.  According  to  the  terms  of  this  law,  the  bank 
can  only  issue  notes  up  to  the  total  of  the  cumulative  amount  of 
its  reserve  and  of  its  capital.  As  this  capital  is  ^i  6,200,000  ster- 
ling, this  means  to  say  that  the  sum  of  notes  issued  can  never 


314  PRINCIPLES    OF    POLITICAL   ECONOMY. 

exceed  the  amount  of  the  reserve  by  more  than  ^16,000,000 
odd. 

To  insure  the  better  observation  of  this  regulation,  the  Bank  of 
England  is  divided  into  two  distinct  departments,  one  charged 
with  banking  operations,  deposits,  and  discount,  which  cannot 
issue  any  notes,  and  the  other  entrusted  with  the  issuing  of  notes, 
which  can  transact  no  banking  business.  The  latter  hands  over 
its  notes  to  the  other  department  according  to  requirements,  but 
when  it  has  delivered  over  notes  to  the  value  of  ^16,000,000  odd, 
it  can  henceforward  only  deliver  notes  in  exchange  for  specie  or 
buUion. 

Evidently  this  limitation  could  be  not  regarded  as  offering  any 
really  substantial  guarantee  in  the  case  of  any  other  bank  than  the 
Bank  of  England,  for  the  capital  of  a  bank  is  not  always  immedi- 
ately capable  of  realization,  and  in  this  case  in  particular  we  may 
say  that  the  guarantee  is  purely  fictitious.  In  fact,  it  is  repre- 
sented (at  any  rate,  up  to  the  sum  of  ^11,000,000)  by  a  mere 
claim  upon  the  State,  so  that  the  ;^i  6,000,000  worth  of  notes, 
which  can  be-  issued  above  the  amount  of  the  reserve,  are  only  a 
kind  of  paper  money. 

Further,  in  practice,  and  precisely  in  times  of  crisis,  this  limita- 
tion has  been  found  to  be  so  seriously  inconvenient  that  already 
on  three  separate  occasions  it  has  been  necessary  to  suspend  the 
law,  and  to  allow  the  bank  to  exceed  the  fatal  limit.  It  is  easy  to 
understand  that,  if  the  bank  happens  to  have  ^^20,000,000  of 
reserve,  and  _;^36,ooo,ooo  of  notes  in  circulation,  it  will  be  obliged 
to  refuse  all  discount.  For  with  what  could  it  discount  the  bills 
presented  to  it?  With  notes?  But  the  limit  of  ;!^i6,ooo,ooo  is 
already  reached.  With  the  cash  it  has  in  reserve?  But  if  it 
reduces  its  reserve  to  ;^i 9,999,999,  as  the  circulation  of  notes 
still  stands  at  _;,{^36,ooo,ooo,  the  law  will  be  equally  violated. 
However,  the  Bank  of  England  cannot  refuse  discount  without 
involving  the  bankruptcy  of  half  the  business  men  of  England. 
The  legislator,  therefore,  hastens,  in  these  circumstances,  to  step 
in  to  remove  the  barrier  he  himself  has  raised. 


PRODUCTION.  3 1 5 

An  analogous  system  has  been  applied  in  certain  countries. 
Others  have  preferred  to  establish  a  fixed  ratio,  generally  the  ratio 
of  a  third,  between  the  amount  of  the  reserve  and  the  value  of 
the  notes  issued.  The  disadvantages  are  the  same,  and  perhaps 
even  greater.  It  is  easy  to  prove  that,  with  the  fixed  ratio  of  a 
third,  not  only  discount,  but  even  the  payment  of  notes,  may 
at  any  given  moment  be  rendered  impossible.  Let  there  be 
;^4,ooo,ooo  of  reserve  and  ;;^i  2,000,000  of  issued  notes.  Evi- 
dently the  bank  cannot  cash  one  note  without  causing  the  reserve 
to  fall  below  the  third  of  the  sum  total  of  the  notes,  for  ^3,999,999 
is  not  exactly  the  third  of  ;!{^i  2,000,000.  Thus  the  danger  to  be 
exorcised  is  actually  brought  to  pass. 

Secotidly.     The  second  plan  is  simply  to  fix  a  maximum  of  issue. 

Without  doubt  this  system  is  more  elastic  than  the  preceding 
one,  and,  as  will  be  seen  below  (page  319),  it  has  been  resorted 
to  in  France  since  1870,  Its  inconveniences,  therefore,  are  less; 
but  it  must  be  confessed  that  it  offers  very  few  guarantees,  for 
what  does  it  matter  that  the  bank  can  issue  only  a  limited  number 
of  notes,  if  it  can  reduce  its  reserve  to  zero?  How,  then,  is  the 
public  safeguarded? 

Thirdly.  The  third  method  is  to  compel  banks  to  guarantee 
the  notes  they  issue  by  securities  —  usually  certificates  of  govern- 
ment stock  —  which  are  at  least  equal  in  value  to  the  notes.  This 
is  the  system  used  in  the  United  States.  Each  bank,  in  return  for 
the  notes  it  wishes  to  issue  (and  these,  by  the  way,  are  handed 
over  to  it  by  the  State,  for  the  bank  itself  is  not  permitted  to 
fabricate  notes) ,  must  deposit  as  a  guarantee  certificates  of  gov- 
ernment bonds,  of  a  higher  value  than  the  notes  by  one-tenth. 

This  system  is  useful  for  strengthening  the  credit  of  a  bank  in 
normal  times,  but  at  critical  epochs,  just  when  the  remedy  should 
be  the  most  necessary,  it  is  worthless.  For  under  such  circumstances 
all  stock,  government  securities  included,^  are  naturally  depreciated 
in  value  ;  and  if,  to  satisfy  demands  for  the  payment  of  notes,  the 

1  General  P'rancis  A.  Walker  remarks  that  the  statement  is  not  correct,  if 
applied  to  the  United  States. 


3l6  PRINCIPLES    OF    POLITICAL    ECONOMY. 

banks  were  obliged  to  realize  the  enormous  amount  of  stock  held 
as  security,  they  would  fail  to  succeed.  Such  an  operation  would 
only  ruin  the  credit  of  the  State,  without  raising  that  of  the  banks. 

It  can  thus  be  seen  that,  taking  all  in  all,  no  one  of  the  sys- 
tems hitherto  conceived  can  guarantee  the  payment  of  notes. 
The  only  efficacious  method  would  be  to  oblige  banks  always  to 
keep  a  reserve  equal,  not  only  to  the  total  value  of  their  notes 
in  circulation,  but  also  to  the  amount  of  their  deposits.  Then, 
indeed,  the  guarantee  would  be  perfect ;  but  then,  alas  !  banks 
would  be  of  no  further  use,  except  to  avoid  the  accidental  losses 
or  the  wear  and  tear  of  coin,  which  would  be  a  very  minute  utility. 
They  would  no  longer  utilize  the  floating  capital  of  the  country, 
for  they  would  confine  themselves  to  uselessly  heaping  it  up  in 
their  cellars.  They  would  no  longer  serve  to  economize  money, 
for  the  bank  note  would  henceforth  have  but  a  representative 
character.  Finally,  they  would  no  longer  be  credit  institutions. 
If  we  wish  to  use  credit,  we  must  resign  ourselves  to  its  disadvan- 
tages. It  is  a  mere  attempt  at  the  squaring  of  the  circle,  to  seek 
to  combine  at  one  and  the  same  time  the  advantages  of  credit  and 
of  ready  money,  for  the  two  are  mutually  exclusive. 

Must  we,  then,  seeing  that  all  regulation  appears  to  be  useless, 
if  it  be  not  irksome  or  dangerous,  adopt  the  principle  of  laissez 
/aire,  and  permit  banks  to  issue  notes  after  their  own  fashion  and 
without  control?  Many  writers  do  claim  this  liberty  for  banks, 
and  their  reasons  are  not  without  weight. 

The  essential  argument  is,  that  there  would  never  be  grounds 
to  fear  an  excessive  issuing  of  notes.  For,  say  they,  the  danger 
is  chimerical ;  the  ordinary  working  of  economic  laws  will  restrain 
this  issuing  within  due  limits,  even  if  the  banks  wished  to  overstep 
them,  and  the  reasons  for  this  are  as  follow  :  — 

Firstly.  In  the  first  place,  bank  notes  are  only  issued  in  the 
course  of  banking  operations ;  that  is  to  say,  by  discounts  or  by 
advances  on  bills.  For  a  bank  note,  then,  to  enter  into  circu- 
lation, it  is  not  sufficient  for  the  bank  to  desire  this  entry ;  there 
must  also  be  some  one  who  is  disposed  to  borrow.  Issues,  there- 
fore, are  regulated  by  the  needs  of  the  pubhc,  and  not  by  the 


PRODUCTION.  317 

desires  of  bankers.  The  amount  of  notes  issued  by  the  bank  will 
depend  upon  the  number  of  bills  presented  for  discounting/  and 
the  amount  of  these  bills  will  depend  on<  the  state  of  business 
transactions. 

Secondly.  Bank  notes  only  enter  into  circulation  for  a  short 
time ;  a  few  weeks  after  issue,  they  return  to  the  bank.  We  might 
say  of  them,  in  the  words  of  Corneille,  — 

"  Leyfwjr  les  apporta,  le  reflux  les  remporte." 

Take  a  ;^ioo  note  which  is  issued  in  exchange  for  a  bill  of  ex- 
change ;  in  forty  or  fifty  days,  or  ninety  at  the  outside,  when  the 
bank  is  able  to  cash  the  bill  of  exchange,  the  ;!{^ioo  note  will 
return  to  it.  Probably  it  will  not  be  the  same  note,  but  what  does 
that  matter?     It  returns  for  the  same  amount  as  it  was  issued  for. 

Thirdly.  Even  granting  that  the  bank  may  issue  an  excessive 
quantity  of  notes,  still  it  will  be  impossible  for  it  to  keep  them  in 
circulation ;  for  if  the  note  is  issued  in  superabundant  quantity,  it 
will  necessarily  be  depreciated ;  as  soon  as  it  becomes  depreci- 
ated, however  slightly,  the  holders  of  notes  will  hasten  to  bring 
them  to  the  bank  to  demand  their  payment.  It  will  be  useless, 
then,  for  the  bank  to  attempt  to  inundate  the  public  with  notes ;  it 
will  fail  in  its  endeavors,  being  in  its  turn  flooded  with  the  notes. 

These  considerations  certainly  contain  part  of  the  truth,  and 
experience  has  confirmed  them  on  more  than  one  occasion. 
Banks  have  never  succeeded  in  forcing  into  circulation  more  notes 
than  the  public  needs  required. 

Still,  we  must  not  disguise  the  fact  that  absolute  freedom  of  issu- 
ing may  entail  grave  dangers,  in  times  of  crisis,  if  not  at  normal 
times.  Now  crises  are  very  frequent  occurrences  in  the  economic 
life  of  modern  societies. 

No  doubt  it  is  true  that  in  theory  the  amount  of  notes  issued 
depends  on  the  demand  of  the  public,  and  not  on  the  will  of  the 
banks.     But  observe,  that  if  one  bank  alone  seeks  to  attract  cus- 

1  But  see  note  above,  page  300  [on  fact  that  advances  need  not  be  of 
notes].  —  J.  B. 


3l8  PRINCIPLES    OF    POLITICAL    ECONOMY. 

tomers  and  to  compete  with  its  rivals,  it  can  always,  by  suffi- 
ciently lowering  the  rate  of  discount,  succeed  in  largely  increas- 
ing the  extent  of  its  operations,  and  consequently,  also,  of  its 
issues.  It  is  likewise  true  that  the  notes  issued  in  excessive  quan- 
<>ity  by  this  imprudent  bank  will  return  to  it  for  payment  as 
soon  as  they  become  depreciated.  But  observe  that  this  depre- 
ciation does  not  make  itself  felt  immediately.  It  will  only  be  at 
the  end  of  a  few  days,  perhaps  a  few  weeks ;  and,  if,  during  this 
interval,  the  bank  has  issued  an  excessive  quantity  of  notes,  the 
day  on  which  they  return  will  be  too  late  for  it.  It  will  no  longer 
be  able  to  pay  them,  and  will  be  submerged  under  that  ebb 
tide  of  circulation  of  which  we  just  spoke.  Certainly  the  bank 
will  be  the  first  to  be  punished  for  its  imprudence,  by  failing.  But 
how  does  that  help  us?  Our  business  here  is  to  ward  off  the 
crisis,  and  not  to  punish  its  authors. 

It  is  on  this  point  that  we  find  an  argument  for  monopoly. 
There  is  reason  to  believe  that  a  bank  holding  an  eminent  posi- 
tion in  a  country,  and  rendered  strong  by  its  history  and  by  its 
traditions,  will  carry  into  the  matter  of  the  issuing  of  notes  all  the 
prudence  that  is  desirable,  and  this  of  itself  is  the  only  really 
efficacious  guarantee.  Besides,  experience  confirms  this  way  of 
regarding  the  matter  in  the  case  of  all  the  great  banks,  and 
especially  of  the  Bank  of  France ;  for  the  latter,  during  its  ninety 
years  of  existence,  has  allowed  only  one  reproach  to  be  brought 
against  it  —  that  of  an  excessive  prudence  —  which  has  deprived 
its  functions  of  part  of  their  utility.  At  certain  times  the  amount 
of  its  reserve  has  actually  exceeded  the  value  of  the  notes  issued. 
Usually  the  issue  of  notes  is  greater  than  the  amount  of  the  reserve 
by  not  quite  a  fourth.  Thus  the  balance  of  1890  shows  2,850,- 
000,000  francs  of  notes  in  circulation,  as  against  2,481,000,000 
francs  of  coin  in  reserve,  or  ^114,000,000  as  against  ;^9o,ooo,ooo 
sterling.  Now  the  Bank  of  France  has  never  been  subjected  to 
any  regulation,  so  far  as  concerns  the  issuing  of  notes ;  but  for 
a  short  time  past  a  maximum  issue  has  been  established  of 
;^i40,ooo,ooo  sterling,  —  by  the  new  bill  this  is  to  be  raised  to 


PRODUCTION.  319 

;^i 60,000,000.  Still,  as  was  said  above,  this  maximum  is  of  very 
recent  date.  It  did  not  exist  in  the  statutes  of  the  bank,  and  was 
only  introduced  by  surprise,  we  might  say,  in  the  Law  on  Finance 
of  1883.  It  formerly  obtained  only  in  the  case  of  forced  currency. 
Again,  this  limit  of  a  maximum  is  a  precautionary  measure,  taken 
far  less  against  the  bank  than  against  the  State.  It  was  not 
dictated  by  the  fear  of  the  bank  abandoning  itself  to  excessive 
issues,  but  by  the  fear  of  the  government  demanding  from  it 
excessive  advances. 

Inversely,  in  the  United  States,  where  reigns  the  system  of  free 
competition,  the  legislator  multipUes  regulations  on  the  right  of 
issue.  Not  only  must  the  banks,  as  we  observed  above,  give 
as  a  pledge  for  the  notes  they  issue  a  higher  value  of  government 
securities,  but  they  must  also  show  that  they  possess  a  certain 
capital ;  they  must  keep  in  their  safes  in  coin  at  least  15  per  cent 
of  the  deposits  confided  to  them  ;  they  must  always  leave  a  certam 
sum  in  coin  in  the  public  treasury,  etc.,  etc. 

To  sum  up,  we  must  choose  between  these  two  systems  — 
either  monopoly,"  with  the  most  perfect  freedom  as  regards  the 
issue  of  notes,  or  competition,  with  severe  regulations  as  to  issues. 
In  either  case  we  must  sacrifice  some  freedom,  and,  in  our 
opinion,  there  is  less  to  suffer  from  the  first  system  than  there  is 
from  the  second. 


Part  III. — The  Equilibrium  between  Production 
AND  Consumption. 

CHAPTER   I. 
INSUFFICIENCY    IN    PRODUCTION. 

I.     The  Increase  of  Population ;  the  Laws  of  Malthus. 

Will  production  be  always  sufficient  for  the  wants  of  man? 
That  is  a  problem  which  never  ceases  to  be  disquieting. 

We  must  consider  that,  on  tke  one  hand,  the  number  of  men 
constantly  multiplies  in  virtue  of  the  physiological  laws  of  popula- 
tion ;  and  that,  on  the  other  hand,  the  needs  of  each  man  increase 
even  more  rapidly,  perhaps,  in  virtue  of  the  psychological  laws 
we  have  already  analyzed.  Human  industry,  then,  has  always  to 
satisfy  this  double  progression ;  that  is  to  say,  to  furnish  a  share 
of  wealth  which  must  ever  be  larger  for  each  sharer  therein, 
whilst  the  number  of  those  who  are  sharers  is  ceaselessly  aug- 
mented. Will  human  industry  always  be  able  to  satisfy  these 
demands? 

We  know  that  Malthus,  in  his  famous  formula,  affirmed  that 
"  population  tends  to  increase  in  a  geometrical  progression,  whilst 
the  means  of  subsistence  can  only  increase  in  an  arithmetical 
progression  "  at  the  best. 

He  expressed  this  double  law  in  this  double  formula,  which  he 
only  intended  to  serve  to  illustrate  his  argument,  and  which  has 
been  wrongly  taken  literally  :  — 

Progrcssioti  of  population,  i,  2,  4,  8,  16,  32,  64,  128,  256  .  .  . 
Progression  of p7'oduction,  i,  2,  3,  4,    5,    6,     7,      8,      9  .  .  . 
320 


PRODUCTION.  321 

Malthus  calculated  at  twenty-five  years  the  period  of  time  which 
would  on  the  average  elapse  between  two  consecutive  terms  of 
these  progressions.  Thence  he  concluded  that  "  at  the  end  of  two 
centuries,  the  population  would  be  to  the  means  of  subsistence  as 
256  are  to  9  ;  at  the  end  of  three  centuries,  as  4906  to  13  ;  and 
after  2000  years,  the  difference  would  be  immense,  and  almost 
incalculable." 

Thus,  far  from  hoping  that  production  would  increase  equally 
with  consumption,  he  asserted  that  production  would  always 
remain  behind,  and  far  behind.  His  conclusion  was  that  the 
equilibrium  could  only  be  re-established  by  a  kind  of  systematic 
shearing  down  of  the  human  species,  effected  by  means  of  wars, 
epidemics,  famines,  misery,  and  other  similar  scourges,  which 
appeared  to  him  in  the  light  of  actual  providential  laws.^  Still,  he 
dared  to  hope  that  in  the  future  men  would  have  the  wisdom  to 
forestall  the  action  of  these  scourges  and  render  them  useless,  by 
themselves  limiting  of  their  own  free  will  the  increase  of  popula- 
tion. Malthus  advised  them,  for  this  purpose,  to  practise  tnoral 
restraint;  that  is  to  say,  to  marry  as  little  as  possible  ;  at  any  rate, 
as  late  as  possible ;  or  at  the  very  least,  only  to  add  to  their 
families  within  the  limits  of  their  own  individual  resources. 

Although  this  doctrine  of  "  moral  restraint "  may  have  highly 
immoral  consequences,  yet,  in  the  way  in  which  its  author  under- 
stood it,  it  perfectly  deserved  the  epithet  of  "  moral "  ;  and  it 
would,  therefore,  be  unjust  to  render  Malthus  responsible  for  the 
practices  by  which  some  of  his  disciples  have  sullied  his  doctrine 
and  his  name.- 

In  order,  then,  to  maintain  the  equilibrium  between  the  means  of 
subsistence  and  the  number  of  mouths  to  feed,  he  counted  far  less 
on  the  increase  of  production  than  on  the  limitation  of  population. 

1  In  the  sense  in  which  the  consequences  of  our  own  actions,  good  and 
bad  respectively,  follow  from  these  actions  by  laws  which  are  as  truly  ordered 
by  Providence  as  is  the  sequence  of  effects  from  any  other  causes.  —  J.  B. 

2  No  doubt,  as  in  the  case  of  Robert  Dale  Owen,  with  the  best  intentions. 
-J.  B. 


322  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Nearly  a  century  has  passed  since  the  publication  of  this  doc- 
trine ;  and,  up  to  the  present,  experience  has  failed  to  justify  the 
pessimistic  forecastings  of  Malthus.  In  certain  countries,  in  spite 
of  a  rapid  development  of  population,  we  have  witnessed  the 
production  of  wealth  developing  even  more  rapidly.  Still,  it  is 
perhaps  too  early  for  us  to  reassure  ourselves  ;  and  the  fatal  law 
yet  remains  ever  suspended,  at  any  rate,  in  a  menacing  position, 
over  the  heads  of  the  human  species. 

The  rate  of  increase  of  population  in  civilized  countries  may  be 
reckoned  as  about  i  per  cent  (more  exactly,  9  out  of  1000),  which 
corresponds  to  a  period  of  doubling  in  72  years,  and  is  thus  far 
inferior  to  that  predicted  by  Malthus.^  Thus,  the  yearly  increase 
for  Germany,  England,  and  Russia  is  respectively  9,  10,  and  13 
per  1000;  but  it  is  less  for  some  countries,  especially  for 
France,  which  is  far  in  the  rear.  In  this  respect  France  is  far  too 
faithful  to  the  doctrines  of  Malthus,  for  its  yearly  increase  is  but 
2  for  every  1000.^ 

On  the  other  hand,  some  countries  show  an  infinitely  more  rapid 
progression.  For  a  century  past  the  population  of  the  United 
States  has  doubled  in  every  25  years,  and  that  of  the  Australian 
Colonies  in  less  than  10  years ;  the  population  of  the  United 
States  was  4,000,000  in  1790,  and  about  62,480,000  in  1890; 
the  population  of  New  South  Wales  and  Victoria  was  29,800  in 
182 1,  when  they  formed  but  one  colony,  and  in  1888  was  more 
than  2,000,000.  But  this  enormous  increase  has  been  due  to 
immigration  far  more  than  to  the  excess  of  births  over  deaths,  and 
consequently  is  beside  the  question. 

Yet,  even  at  this  apparently  moderate  rate  of  i  per  cent,  the 
increase  in  population  would  be  literally  awful,  and  would  lead  to 
almost  inconceivable  results.  Granting  that  the  population  of  the 
world,  which  is  now  calculated  to  be  1,500,000,000,  were  to  increase 
I  per  cent  per  annum,  it  would  reach  3,000,000,000  by  the  middle 

1  Malthus  asserted  tendencies ;  but  he  made  no  positive  predictions.  —  J.  B. 

2  See  Dr.  Longstaff's  Studies  in  Statistics  (London,  1891),  especially  chap- 
ters V.  and  VL  — J.  B. 


PRODUCTION.  323 

of  the  next  century,  and  48,000,000,000  about  the  year  2240; 
that  is  to  say,  in  only  360  years.  A  Httle  further  prolongation  of 
the  progression  would  show  that  in  about  800  years  the  whole 
earth  would  be  as  thickly  populated  as  the  environs  of  Paris,  and 
that  in  1 200  years,  which  is  really  a  short  period  in  the  history  of 
the  world,  there  would  have  to  be  one  man  for  each  square  yard, 
which  would  not  leave  them  room  to  live  in  or  to  move  in  ! 

No  doubt  it  is  perfectly  certain  that  such  results  will  not  come 
to  pass,  but  what  causes  will  prevent  them  ?  To  know  them  would 
be  to  know  the  law  of  population,  and  we  must  confess  that  we  are 
ignorant  of  that.  However,  biology  has  supplied  us  with  a  solu- 
tion, which,  if  proved,  will  be  found  to  be  a  new  contribution  of  that 
sister  science.  As  \!i\Q  fertility  of  airy  species  appears  usually  to  vary 
in  inverse  ratio  to  the  development  of  the  individuals  of  the  species 
(for  the  lower  species  increase  in  infinitely  larger  proportions  than 
do  the  higher  animals,  and  man  in  particular) ,  —  as  in  the  human 
species  itself  the  lower  classes  have  generally  more  children  than 
the  picked  classes, —  and  further,  as  there  appears  to  be  a  physio- 
logical law  which  would  seem  to  establish  an  antagonism  between 
generative  activity  and  cerebral  activity,  we  may  hope  that  the 
fecundity  of  the  human  species  is  destined  to  slacken  progressively 
in  proportion  to  the  intellectual  and  moral  development  of  the 
individuals  that  compose  it.  (See  Herbert  Spencer's  Biology, 
and  The  Evolution  of  Sex,  by  Professor  Patrick  Geddes.) 

II.    On  the  Limitation  of  Production  in  Agriculture,  and  the 
Law  of  Decreasing  Returns. 

We  have  seen  how  threatening  can  be  the  increase  in  consump- 
tion ;  let  us  now  consider  what  we  can  hope  from  increase  in  pro- 
duction. We  are  aware  that  Malthus  admitted  that  the  means  of 
subsistence  could  increase  in  an  arithmetical  progression  ;  but  that 
is  far  too  favorable  a  supposition.  At  present  France  produces 
about  100,000,000  hectolitres  of  wheat.  Seventy  years  ago,  in 
1820,  the  production  was  50,000,000.     Seventy  years  hence  the 


324  PRINCIPLES    OF    POLITICAL    ECONOMY. 

yield  may  perhaps  be  150,000,000.  But  how  can  we  be  per- 
suaded into  beheving  that  there  will  be  a  similar  increase  for  each 
future  period  of  seventy  years?  The  supposition  is  altogether 
inadmissible.  Moreover,  the  doubling  of  the  production  between 
1820  and  the  present  day  arises  from  two  causes  :  the  area  of  land 
sown  with  wheat  has  increased,  and  at  the  same  time  the  yield  per 
acre  has  been  augmented. 

The  production  of  a  piece  of  land  of  given  area  is  of  course 
not  unlimited.  Not  only  does  it  not  lie  with  the  cultivator  to 
increase  indefinitely  the  elements  capable  of  assimilation  that  the 
soil  contains,  but  further,  could  he  even,  like  the  gardener  with 
his  pots,  make  altogether  new  an  artificial  plot  of  ground,  it  would 
not  be  within  his  power  to  cause  an  indefinite  number  of  ears  to 
grow  upon  a  given  area,  or  to  give  to  each  ear  an  indefinite  num- 
ber of  grains,  or  to  hasten  by  one  hour  the  time  appointed  for 
their  coming,  to  maturity.  Vainly  would  it  be  replied,  that  by 
manuring  or  by  more  deeply  ploughing  the  subsoil  he  can  indefi- 
nitely enrich  his  plot.  The  depth  of  the  stratum  of  earth  in  which 
the  roots  of  plants  can  find  nourishment  is  strictly  limited,  and  so, 
too,  is  the  quantity  of  natural  and  even  of  artificial  manures  that 
agriculture  can  employ.  Indeed,  some  of  the  most  indispensable, 
such  as  the  phosphates,  may  be  regarded  as  rare. 

Thus  his  power  is  absolutely  limited  by  the  biological  laws 
which  in  a  sovereign  manner  determine  the  constitution  and  the 
evolution  of  all  living  beings.  Every  creature,  be  it  animal  or 
plant,  requires  a  certain  space  whence  to  obtain  nourishment,  and 
a  certain  time  for  its  development ;  and  these  two  conditions  are 
enough  to  shackle  agricultural  industry  by  a  chain  which  manu- 
facturing industry  has  in  a  measure  shaken  off. 

Still  everything  induces  us  to  believe  that  the  limit  is  yet  very 
far  distant,  for  certainly  the  most  improved  agriculture  of  the  pres- 
ent day  does  not  utilize  more  than  a  minute  portion  of  the  raw 
materials  and  natural  forces  that  exist  on  a  given  area  of  land.  If 
the  steam  engirds  is  still  so  imperfect  that,  according  to  the  calcu- 
lations of  engineers,  it  uses  only  7  or  8  per  cent  of  the  heat  gener- 


PRODUCTION.  325 

ated  by  the  combustion  of  coal,  that  machine  which  is  called  a 
potato  field,  a  pasture  land,  a  corn  field,  is  defective  in  a  radically 
different  way ;  and  if  agricultural  science  were  as  skilled  as  the 
science  of  mechanics  in  determining  the  theoretical  returns,  we 
might  doubtless  prove  that  the  actual  yield  is  not  the  hundredth 
part  of  what  might  theoretically  be  produced. 

The  agriculturist  can  always,  if  he  likes,  increase  the  returns  of 
the  soil ;  but  after  having  passed  a  certain  stage  in  agriculture  he 
can  only  do  so  at  the  price  of  a  labor  which  constantly  increases,  so 
that  a  moment  arrives  when  the  effort  required  to  increase  the 
returns  would  be  disproportionate  to  the  result. 

Take  an  acre  of  land  producing  20  bushels  of  corn,  which  is 
about  the  average  for  France.  Let  us  suppose  that  these  20 
bushels  of  corn  stand  for  100  days'  work,  or,  if  it  is  preferred,  for 
;^5  ;  the  proposition  means  that  to  produce  on  this  land  twice 
the  quantity  of  wheat,  or  40  bushels,  we  must  spend  more  than 
200  days'  labor,  or  inore  than  ^10  in  expenses.  To  double  the 
product  it  will  perhaps  be  necessary  to  triple,  quadruple,  or  even 
multiply  by  ten  the  labor  and  the  expense.  This  is  called  the  law 
of  decreasing  returns  {i.e.  not  proportionate  to  the  labor) , 

It  is  certainly  confirmed  by  every-day  experience.  Question  an 
intelligent  farmer,  and  ask  him  whether  his  land  could  not  produce 
more  than  it  yields.  He  will  reply,  "  No  doubt  it  would.  The 
crop  of  wheat  would  be  larger,  were  I  to  use  more  manure,  plough 
deeper,  clear  the  ground  of  the  minutest  dandelion  roots,  employ 
manual  labor  to  break  up  the  soil,  dibble  in,  if  necessary,  every 
grain  of  seed  by  hand,  protect  the  crop  against  insects,  against 
birds,  against  parasite  plants."  " Then  why  don't  you  do  so?" 
"  Because  I  should  not  recover  my  expenses ;  that  addition  to  the 
yield  would  cost  me  more  than  it  would  be  worth." 

Thus  in  the  production  of  any  plot  of  land  there  is  a  point  of 
equilibrium,  which  marks  an  impassable  limit,  not  of  course  a  limit 
which  could  not  be  passed  if  it  were  wished,  but  one  that  no  one 
wishes  to  pass,  because  there  is  nothing  to  be  gained  by  so  doing. 

If  the  case  were  otherwise,  if  there  could  be  an  indefinite  in- 


326  PRINCIPLES    OF    POLITICAL    ECONOMY. 

crease  in  the  production  of  a  piece  of  land  of  given  area,  provided 
that  the  labor  and  expense  were  proportionately  increased,  land- 
proprietors,  surely,  would  not  fail  to  avail  themselves  of  it.  Instead 
of  extending  their  cultivated  areas  over  a  more  or  less  large  do- 
main, they  would  restrict  them  to  the  smallest  possible  space  : 
that  would  be  far  more  convenient.  But  then  the  face  of  the 
earth  would  be  utterly  changed.  The  fact  that  matters  do  not 
pass  in  that  fashion,  and  that  we  ceaselessly  put  under  cultivation 
less  fertile  or  less  favorably  situated  plots,  proves  clearly  enough 
that  in  practice  we  cannot  expect  more  than  a  certain  return  from 
a  particular  piece  of  ground. 

Yet  it  is  important  to  make  three  observations  on  this  law. 

Firstly.  This  point  of  limitation  is  far  from  being  generally 
reached,  even  in  countries  where  cultivation  is  relatively  advanced. 
Most  landowners,  either  from  routine  or  from  want  of  capital,  are 
still  far  below  the  limit,  and  in  France  there  is  assuredly  a  scarcity 
of  agriculturists  who  could  really  hold  the  language  attributed  to 
them  above  ;  i.e.  who  would  not  find  more  profit  in  increasing 
their  production.  There  are  millions  of  acres,  not  only  in  France, 
but  even  in  England  or  in  China,  where  the  profit  could  be  more 
than  doubled  by  doubling  the  capital,  and  to  which,  therefore,  the 
law  of  non-proportionate  returns  fails  to  apply. 

Secondly.  This  point  of  limitation  is  not  invariable.  It  is 
determined  by  the  state  of  knowledge  at  any  given  moment ;  but 
provided  that  agriculture  progresses  and  changes  its  methods  of 
cultivation,  the  limit  is  ceaselesly  driven  up.  The  very  landowner 
who  to-day  finds  no  profit  in  producing  more  than  twenty  bushels 
the  acre,  because  the  additional  crops  would  not  be  worth  the 
additional  labor,  will  find  it  profitable  half  a  century  hence,  if  by 
then  the  labor  and  expenses  necessary  for  production  have  become 
lowered  by  the  invention  of  more  powerful  agricultural  machines, 
or  by  the  discovery  of  more  fertilizing  and  less  dear  manures. 
And,  if  some  day  there  be  no  means  of  further  developing  the 
production  of  corn,  corn  may  perhaps  be  replaced  with  profit  by 
some  other  more  prolific  or  more  nutritious  plant. 


PRODUCTION.  327 

Now,  kitchen-gardening  turns  the  soil  to  far  better  effect ;  it 
multiplies  vegetables  far  more  rapidly  than  corn  or  cattle  when 
grown  on  a  large  scale,  and  can  consequently  produce  a  far  greater 
quantity  of  food-stuffs.  It  is  probable,  then,  that  this  will  be  the 
agriculture  of  the  future,  and  that  in  a  few  centuries  the  whole  of 
Europe  will  be  like  the  environs  of  Paris  and  of  other  great  towns 
at  the  present  day.  Countries  beyond  the  sea  would  then  supply 
what  is  now  supplied  by  the  provinces ;  to  wit,  corn  and  meat, 
if  indeed  they  are  to  be  articles  of  consumption  at  that  date. 
This  kitchen-gardening  requires  nothing  more  than  a  great  deal 
of  manual  labor  and  enough  manure  ;  now  these  double  conditions 
are  perfectly  satisfied  by  the  great  density  of  the  population.  Thus 
by  means  of  an  artificial  soil,  by  artificial  heat  produced  in  hot- 
houses, perhaps  by  artificial  light  furnished  by  electricity,  food- 
giving  products  may  be  in  some  manner  manufactured  de  novo. 

Thirdly.  Finally,  even  when  the  limit  is  reached  by  any  par- 
ticular country,  if  there  be  still  certain  regions  of  the  globe  which 
have  not  yet  attained  to  that  condition,  the  latter  may  supply 
the  former  with  whatever  they  may  lack,  provided  that  the  means 
of  transport  are  sufficiently  improved  and  that  trade  can  work 
freely.  Under  these  conditions,  the  law  of  non-proportionate 
returns  will  only  be  slightly  felt  by  the  most  thickly  peopled  coun- 
tries, for  they  will  do  what  has  already  been  practised  by  England, 
Belgium,  and  even  France.  Instead  of  trying  to  force  the  returns 
from  their  own  territory,  they  will  prefer  to  send  for  a  part  of,  if 
need  be  all  of,  their  means  of  subsistence,  from  still  new  countries 
which  can  produce  food  in  superabundance.  To  be  able  to  obtain 
this  by  exchange,  they  will  only  need  to  produce  manufactured 
goods ;  and  since,  as  we  are  on  the  point  of  seeing,  the  law  of 
non-proportionate  returns  does  not  apply  in  the  least  to  the  manu- 
facturing industry,  the  older  countries  will  be  able  to  obtain  food- 
stuffs in  as  large  quantities  as  they  may  wish. 

Nevertheless  this  resource  can  be  merely  provisional,  for  in 
order  to  supply  the  deficiency  in  some  countries  there  must  be  a 
surplus  in  others.    Now,  when  these  latter  are  in  their  turn  equally 


328  PRINCIPLES    OF    POLITICAL    ECONOMY. 

peopled,  they  will  no  longer  have  any  excess  of  food  to  dispose  of. 
All  that  we  can  say  is,  that,  as  these  uncultivated  or  barely  cultivated 
countries,  which  are  the  reserve  fund  of  the  future,  still  cover  the 
larger  part  of  the  globe,  our  provisional  resources  will  last  for 
several  centuries. 

III.    On  the  Limitation  of  Production  in  Other  Industries. 

There  are  some  industries  which  are  even  worse  off  than  agri- 
culture ;  not  only  are  we  unable  to  indefinitely  ificrease  the  pro- 
duction of  these,  but  we  cannot  even  hope  to  maintain  their 
present  production  for  an  indefinite  period.  Among  them  rank 
the  extractive  industries.  At  present  as  much  coal  as  one  likes 
can  be  taken  from  the  mine,  but  a  time  will  come  when  there  will 
be  none  left,  and  already  England  is  calculating  with  dread  the 
number  of  tons  that  remain  for  her  to  burn. 

It  is  the  same  with  other  industries  which  are  commonly  classed 
as  extractive,  such  as  hunting,  fishing,  and  the  opening  up  of 
forests.  The  first  of  these,  which  holds  so  prominent  a  place  in 
primitive  societies,  has  now  disappeared  from  the  list  of  productive 
industries,  at  least  in  civilized  countries,  for  the  excellent  reason, 
that  in  spite  of  the  severe  regulations  in  force,  it  has  ceased  to 
yield  remunerative  returns.  Even  in  the  deserts,  even  in  the 
solitude  of  the  Poles,  the  spoils  of  elephants,  ostriches,  beavers, 
otters,  and  whales  are  beginning  to  fail  the  explorers  who  seek 
them  there.  The  exhaustion  of  the  seas  which  bathe  our  shores 
is  an  endless  source  of  lamentation  for  our  sea-faring  population, 
who  are  already  obliged  to  fish  on  the  high  seas,  and  to  provide 
stronger  boats.  Finally,  the  disappearance  of  forests,  and  conse- 
quently of  working  in  wood,  would  already  be  a  fait  accompli  in 
Europe  were  it  not  for  legislative  intervention. 

Yet  although  this  approximate  exhaustion  is  the  fate  reserved 
for  the  extractive  industries,  we  are  able  to  delay  it  for  a  time  by 
changing  their  methods  of  procedure.  Instead  of  hunting  the 
ostrich,  we  can  rear  it ;  instead  of  fishing,  we  can  practise  pisci- 


PRODUCTION.  329 

culture ;  instead  of  clearing  away  forests,  we  can  sow  new  planta- 
tions. In  fine,  we  can  transform  these  extractive  industries  into 
a^r^V/y/Zwrd!/ industries,  though  they  will  consequently  be  subjected 
to  the  same  law  as  the  latter. 

There  are  other  industries  which  are  more  favored  than  agricul- 
ture, and  which  completely  escape  the  law  of  decreasing  returns. 
The  nature  of  the  manufacturing,  commercial,  and  transporting 
industries  exempts  them  from  the  working  of  such  a  law.  Not 
only  have  they  no  reason  to  fear  that  their  expenses  will  increase 
in  a  higher  proportion  than  their  production,  but,  on  the  contrary, 
their  general  expenses  decrease  in  direct  ratio  to  the  expansion 
of  their  output.  Their  fear  is  not  of  being  able  to  supply  the 
demands  of  consumers,  but  of  producing  over  and  above  the  re- 
quirements of  consumption.  Indeed,  this  is  one  of  their  greatest 
cares ;  for  at  the  present  day  manufacturers  are  somewhat  fre- 
quently obliged  to  concert  together  to  restrict  their  output  within 
certain  limits,  so  as  not  to  cause  a  glut  in  the  market.  Such 
agreements  are  called  "Trusts." 

As  a  proof  that  manufacturing  industries  are  burdened  by  no 
law  of  limitation,  we  may  adduce  the  example  of  English  cotton 
spinners,  -who  produce  as  many  yards  of  cotton  stuffs  as  would 
gird  the  terrestrial  globe  120  times;  5,000,000,000,  to  be  exact. 
Nothing  would  prevent  them  from  making  enough  cotton  goods  to 
clothe  the  whole  globe  with,  if  only  they  were  able  to  dispose  of 
them.  It  is  sometimes  urged  in  objection  that  commercial  or  man- 
ufacturing industry  is  itself  limited  by  the  limitation  of  markets ; 
for  a  manufacturer  cannot  always  develop  his  production,  and 
at  the  same  time  find  new  customers ;  a  railway  company  which 
increases  its  communications  too  quickly  is  liable  to  a  diminution 
in  its  profits.  That  is  an  extraordinary  confusion  of  thought.  Our 
question  is,  whether  industry  is  able  to  constantly  keep  up  with 
increases  in  the  demand,  and  we  are  given  cases  in  which  produc- 
tion exceeds  this  demand  ! 

There  is,  then,  a  complete  contrast  between  the  two  great 
branches  of  production,  and  it  is  easily  explained  by  the  natural 


330  PRINCIPLES    OF    POLITICAL    ECONOMY. 

difference  between  these  two  forms  of  human  activity.  The  part 
played  by  the  agricuUurist  is,  so  to  speak,  merely  passive ;  he  has 
to  look  on  Nature  doing  her  work  according  to  laws  that  he 
scarcely  knows,  and  which  he  cannot  alter.  He  has  to  wait 
patiently  for  long  months  before  the  seed  slumbering  in  the  furrow 
is  transformed  into  the  ear,  and  long  years  before  the  acorn  be- 
comes the  oak.  The  manufacturer,  on  the  other  hand,  effects  on 
matter  transformations  which  are  usually  simple,  and  of  which  he 
at  any  rate  knows  the  laws.  His  auxiliaries  are  housed  and 
tamed,  and  work  under  his  orders  with  the  precision  of  automata. 
He  is  not  bound  in  by  the  inexorable  cycle  of  the  seasons ;  day 
and  night,  summer  and  winter,  his  furnaces  can  glow  and  his 
looms  can  turn. 

Yet  it  would  be  a  mistake  to  imagine  that  the  productive  power 
of  manufacture  is  altogether  unlimited ;  first  of  all,  as  it  can 
obviously  only  work  on  the  material  supplied  it  by  the  agricultural 
and  extractive  industries,  it  is  in  a  measure  bound  up  with  them, 
and  thus  by  reaction  is  subjected  to  the  law  of  their  limitation  ; 
and  further,  it  is  evidently  once  more  limited  by  the  amount 
of  labor  and  of  capital  that  it  has  at  its  disposal. 

IV.    How  Limitation  of  Production  affects  Prices. 

If  the  working  of  these  laws  of  decreasing  returns  be  accu- 
rate, they  should  have  a  double  practical  consequence,  which 
would  easily  verify  them.  They  ought  to  involve,  on  the  one 
hand,  a  constant  rise  in  the  price  of  natural,  and  particularly  of 
agricultural,  products  ;  on  the  other  hand  and  inversely,  a  con- 
stant fall  in  the  price  of  manufactured  goods  and  in  the  cost  of 
transport. 

Now  this  double  phenomenon  is  manifested  in  all  European 
societies,  and  in  a  striking  enough  way  to  excite  the  attention  of 
all  but  the  least  experienced  of  observers.  There  is  no  housewife 
in  France  who  has  not  made  moan  over  the  constant  increase 
in   price    of   all   market   produce,  —  meat,    poultry,    fish,    game, 


PRODUCTION.  331 

butter,  eggs,  vegetables,  fruit,  etc.,  —  that  is  to  say,  of  agricultural 
produce. 

The  rise  would  be  even  greater  than  it  is,  were  it  not  for  the 
increasing  improvement  in  means  of  transport.  Just  as  the  law 
of  decreasing  returns  tends  to  raise  the  price  of  agricultural 
produce,  so  are  prices  lightened  by  the  fall  in  the  cost  of  trans- 
port. Here,  then,  is  the  explanation  of  the  fact  that  com,  the 
most  important  of  all  agricultural  products,  does  not  appear  to 
have  sensibly  increased  in  price  during  the  last  twenty  years  ,• 
for,  as  we  know,  the  law  of  decreasing  returns  is,  so  to  speak, 
suspended  every  time  that  a  country  can  obtain  from  abroad  the 
additional  food  supplies  that  it  may  need.  The  only  proviso  is, 
that  the  conveyance  of  these  articles  of  food  is  not  too  difficult. 
Corn  meets  our  point ;  for,  though  cumbrous  enough,  it  is  easy  to 
convey.  If  the  transport  of  meat,  whether  as  livestock,  or  in  a  pre- 
served state,  were  to  become  equally  easy,  the  law  of  non-pro- 
portionate returns  would  be  likewise  suspended  as  far  as  regards 
this  product,  and  the  price  of  meat  would  become  stationary. 

The  fall  in  price  of  manufactured  goods  is  no  less  evident,  and 
it  would  be  a  waste  of  time  to  adduce  unnecessary  figures.  Think 
only  of  made-up  dresses,  linen,  paper,  glass,  books,  and  in  a  word, 
of  all  modern  goods.  There  are  only  two  exceptions,  and  these 
are  not  difficult  to  explain. 

Firstly.  Certain  articles  of  luxury  (lace,  art-furniture,  etc.)  do 
not  share  in  this  fall  of  prices,  for  they  are  usually  more  or  less 
works  of  art,  and  thus  do  not  benefit  by  the  economic  advantages 
of  wholesale  production  and  of  machinery. 

Secondly.  Some  others,  too,  fail  to  reap  any  benefit  because 
raw  material  represents  the  greatest  part  of  their  value.  Now  as 
this  raw  material  can  be  none  other  than  a  product  of  agriculture 
or  of  some  extractive  industry,  it  falls  under  the  working  of  the 
law  of  non-proportionate  returns,  and  necessarily  reacts  upon  the 
industry  which  uses  it.  It  is  clear  that  the  price  of  table-plate 
depends  on  the  price  of  silver,  the  price  of  flour  on  that  of  corn. 
Similarly,  although  in  slighter  measure,  the  rise  in  price  of  an 


332  PRINCIPLES    OF    POLITICAL    ECONOMY. 

agricultural  product,  such  as  wool  or  leather,  may  stop  or  slacken 
the  fall  in  price  of  manufactured  goods,  such  as  cloth  or  shoes. 

An  important  correction  must  be  made  in  these  statistical  ob- 
servations on  the  variations  in  prices.  We  must  allow  for  the  de- 
preciation of  money.  It  is  clear  that,  as  this  is  shown  by  a  general 
rise  of  prices,  it  must  exaggerate  the  rise  in  value  of  agricultural 
produce,  and  inversely  must  conceal  a  portion  of  the  real  fall  in 
value  of  manufactured  goods.  It  may  be  paralleled  by  what 
occurs  when  we  travel  by  train.  The  speed  of  our  own  train 
diminishes  in  our  eyes  the  speed  of  the  trains  that  pass  in  the 
direction  in  which  we  are  going,  and  inversely  increases  the  speed 
of  those  that  are  going  in  the  opposite  direction. 

If  we  calculate  that  the  price  of  any  agricultural  product,  which 
sold  for  I  shilling  in  1848,  is  now  2  shillings,  we  must  beware  of 
saying  that  its  value  has  doubled ;  but  knowing  that  2  shillings 
to-day  are  not  worth  more  than  i  shilling  and  6  pence  thirty  years 
ago,  we  should  say  that  the  value  of  the  article  has  really  increased 
only  50  per  cent.  Inversely,  if  a  manufactured  commodity,  which 
was  sold  for  4  shillings  in  1848,  is  now  sold  for  2  shillings,  we 
must  not  only  say  that  its  value  is  less  by  a  half,  but  knowing  that 
I  shilling  now  would  be  worth  only  9  pence  in  the  money  of  those 
days,  we  must  add  that  the  value  of  this  article  is  really  lowered 
by  63  per  cent. 

The  experimental  verification  given  above  is  especially  striking 
when  we  compare  a  new  country,  whose  production  is  in  its  inf'incy, 
as  regards  both  agriculture  and  manufactures,  with  an  old  country, 
whose  dense  population  has  forced  production  to  develop  on  a 
large  scale.  In  the  Western  States  of  America,  or  in  Australia, 
there  is  a  complete  contrast  between  the  extreme  cheapness  of 
agricultural  produce  and  the  dearness  of  manufactured  goods. 
Food  costs  very  little,  but  clothes  and  housing  cost  a  great  deal. 
Thus  the  table  of  the  humblest  workman  is  abundantly  supplied, 
whilst  the  wardrobe  and  the  furniture  of  even  the  wealthy  is 
exceedingly  simple.  In  old  countries  matters  are  the  other  way 
about :    with  us  expenditure  on  clothes  and  furniture  makes  up 


PRODUCTION.  333 

only  lo  or  15  per  cent  of  the  workman's  budget,  whereas  food 
stands  for  60  per  cent. 

The  result  is  that  the  law  under  discussion  has  most  serious 
effects  on  the  condition  of  the  poorer  classes  of  society.  It  en- 
hances the  dearness  of  the  articles  that  are  the  most  useful  to 
them,  those  they  cannot  dispense  with,  and  that  hold  the  chief 
place  in  their  consumption.  On  the  other  hand,  it  cheapens 
only  those  things  that  are  of  the  least  importance,  and  that  absorb 
only  a  small  portion  of  their  budget.  Modern  industry,  therefore, 
should  direct  all  its  efforts  of  discovery  and  invention  to  the  case 
of  the  production  of  articles  of  subsistence.  Unfortunately  in  that 
quarter  it  has  hitherto  made  the  least  advances.  Agriculture  lags 
far  behind  manufacture,  and  we  know  the  reason  why. 


CHAPTER   II. 
EXCESS  IN   PRODUCTION. 

I.     How  to  maintain  the  Equilibrium  between  Production 
and  Consumption. 

Not  to  produce  enough  is  an  evil.  To  produce  too  much  is 
also  an  evil,  and,  though  less  serious  than  the  former,  it  is  still  a 
grave  ill.  For  all  excess  in  production  necessarily  involves  not 
only  a  waste  of  wealth,  but  also  a  useless  throwing  away  of  forces 
and  of  pain,  and  may  even  bring  along  with  it  those  disorders 
which  are  called  crises.  The  state  of  health  for  the  social  body, 
just  as  for  all  living  bodies,  consists  in  an  exact  equilibrium  be- 
tween the  forces  of  production  and  the  forces  of  consumption. 

In  every  prosperous  society  this  equilibrium  exists,  and  is  pre- 
served in  a  more  or  less  stable  manner,  but,  we  must  ask,  in  virtue 
of  what  law  ? 

If,  like  Robinson  Crusoe  on  his  island,  each  man  produced  for 
himself  all  that  he  needed  to  consume,  there  would  be  nothing 
surprising  about  this  phenomenon,  for  each  one  of  us  is  in  a  cer- 
tain measure  able  to  forecast  his  wants ;  and,  though  his  predic- 
tions may  sometimes  be  erroneous,  he  is  able  to  regulate  his 
production  thereby. 

Nor  would  the  circumstance  be  surprising  if,  even  under  the 
working  of  division  of  labor,  each  consumer  were  to  inform  the 
producer  in  advance  of  what  he  required,  and  if  each  producer 
worked,  as  the  saying  is,  to  order. 

But  it  must  be  observed  that  in  our  actual  societies  nine-tenths 

of  consumers  come  to  the  market  without  having  troubled  to  make 

their  wants  known  in  advance,  and  that  similarly  nine-tenths  of 

producers  bring  their  goods  to  the  market  without  having  waited 

334 


PRODUCTION.  335 

for  any  demand.  Yet  in  spite  of  this  absence  of  any  prior  con- 
cert, the  equiUbrium  between  production  and  consumption  is 
usually  preserved  in  a  satisfactory  enough  fashion.  No  doubt  it  is 
often  disturbed.  As  we  shall  soon  see,  instances  of  deficiency  or  of 
excess  are  frequent ;  but  in  the  end,  after  a  series  of  more  or  less 
sharp  oscillations,  the  beam  of  the  balance  always  tends  to  return 
to  a  normal  position. 

This,  indeed,  is  the  favorite  example  cited  by  all  economists, 
who,  like  Bastiat,  endeavor  to  prove  the  existence  of  a  spontaneous 
order,  of  a  pre-established  harmony  in  all  economic  relations. 
Perhaps  they  show  their  pleasure  in  rather  too  exuberant  a  man- 
ner; nevertheless  it  is  true  that  in  great  cities,  such  as  London 
and  Paris,  every  day  millions  of  inhabitants  are  sure  of  finding 
all  they  want  (that  is  to  say,  those  who  can  pay  for  it)  ;  and  if  we 
consider  that  this  equilibrium  is  spontaneously  maintained  through 
the  length  and  breadth  of  a  vast  country,  without  any  prior 
arrangement,  without  the  intervention  of  any  directing  authority, 
if  we  observe  further  that  probably  the  best  organized  government 
would  be  unable  thus  to  supply  a  great  nation  with  means  of  sub- 
sistence from  day  to  day,  if  we  can  judge  of  it  by  the  difficulty 
experienced  in  provisioning  a  few  army  corps,  we  cannot  neglect 
the  fact  that  here  there  is  a  phenomenon  which  is  well  worthy  of 
our  attention. 

Yet  its  explanation  is  simple  enough.  The  law,  which  con- 
stantly re-establishes  the  momentarily  disturbed  equilibrium  be- 
tween production  and  consumption,  is  that  which  we  have  already 
observed  regulating  the  distribution  of  workers  among  the  various 
branches  of  production ;  it  is  the  law  of  supply  and  demand ;  it 
is  the  }aw  of  values,  which  we  expressed  in  the  following  formula  : 
"Things  have  more  or  less  of  value,  according  as  their  quantity 
is  more  or  less  insufficient  for  our  wants." 

Whenever,  then,  any  commodity  is  seen  to  have  been  produced 
in  greater  quantity  than  is  required,  its  value  will  fall.  The  result 
of  the  fall  in  value  will  be  to  reduce  the  income  of  producers,  and 
in  particular  the  profits  of  the   employer,  who  is  the   principal 


336  PRINCIPLES    OF    POLITICAL    ECONOMY. 

agent  in  production,  and  who  consequently  is  directly  afiected  by 
all  reactions.  Naturally  he  will  step  back  from  a  path  on  which 
he  experiences  miscalculations  and  losses,  and  the  production  of 
the  commodity  will  be  slackened,  until  the  quantity  produced  has 
fallen  back  to  the  level  of  the  quantity  consumed. 

On  the  other  hand,  whenever  any  commodity  has  been  pro- 
duced in  less  quantity  than  is  required,  its  value  will  rise.  Similar 
consequences  will  be  produced  to  those  just  explained,  but  in  an 
inverse  direction ;  that  is  to  say,  producers,  and  the  employer  in 
particular,  will  realize  larger  profits.  Attracted  by  the  bait  of  these 
profits,  which  are  above  the  normal  rate,  other  producers,  whether 
capitalists  or  workers,  will  enter  on  the  same  path.  The  pro- 
duction of  the  commodity  will  then  increase  till  the  quantity 
produced  has  risen  to  the  level  of  the  quantity  demanded. 

II.    Crises. 

This  equilibrium  between  production  and  consumption  is  subject 
to  derangement,  and  that  not  unfrequently ;  whenever  a  rupture 
of  equilibrium  is  thus  produced,  we  say  that  there  is  a  crisis. 
These  crises  are  literally  the  maladies  of  the  economic  organism ; 
their  features  are  as  varied  as  those  of  the  innumerable  illnesses 
that  afflict  mankind.  Some  have  a  periodic  character ;  others  are 
totally  irregular.  Some  afe  short  and  violent,  like  attacks  of  fever  ; 
others  are  slow  "  like  ansemia,"  to  use  M.  de  Laveleye's  phrase. 
Some  are  locahzed  in  one  specific  country ;  others  are  epidemic, 
and  rage  through  the  world. 

Some  economists  have  attempted  to  construct  a  general  theory 
of  crises  by  describing  the  laws  which  regulate  them.  This 
attempt  has  been  made  in  a  very  ingenious  manner  by  Stanley 
Jevons,  who  minutely  described  the  characteristics  of  crises,  and 
concluded  that  they  were  reproduced  periodically  every  ten  years. 
In  fact,  from  the  beginning  of  the  i)resent  century,  he  reckons 
nine  crises  :  those  of  1S15,  1827,  1836,  1839,  1847,  1857,  1866, 
1873,  1878.     Yet,  as  crises  are  great  or  small,  general  or  local,  it 


PRODUCTION.  337 

is  easy  to  count  few  or  many,  and  to  choose  dates  to  suit  your 
theory.  Of  those  confined  to  England,  there  have  been  at  least 
fifteen ;  and  of  those  which  have  spread  over  the  whole  world, 
there  are  really  scarcely  more  than  three  :  those  of  1825,  1847, 
1857,  and  the  latest,  which  started  in  1S78  and  lasted  ten  years. 
According  to  Jevons,  this  ten-yearly  periodicity  would  seem  to 
correspond  to  a  similar  periodicity  of  bad  harvests  ;  and  the  cause 
of  this  appears  to  be  a  decennial  periodicity  in  the  spots  on  the 
sun.  In  this  manner  the  question  of  crises,  their  causes  and  their 
development,  would  be  reduced  to  an  astronomical  problem.  The 
picture  is  brilliant,  if  not  convincing.  Other  writers  on  this  are 
de  Laveleye,  The  Money  Market  and  its  Crises,  and  Juglard,  Cotn- 
mercial  Crises  and  their  Periodic  Recurrence} 

In  spite  of  the  premature  nature  of  these  attempts,  it  is  possible 
to  discover  in  crises  certain  common  characteristics,  and  to  refer 
them  in  particular  to  one  and  the  same  cause;  namely,  as  said 
above,  a  rupture  of  equilibrium  which  happens  to  be  too  sharply 
effected  either  in  the  production  of  a  large  number  of  commodities, 
or  in  the  production  of  some  wealth  which  is  particularly  impor- 
tant from  an  economic  point  of  view ;  such  as  corn,  capital,  me- 
tallic money,  or  credit  papers.  In  each  of  these  cases,  which  we 
now  propose  to  pass  under  review,  the  loss  of  equilibrium  may  be 
shown  in  the  shape  either  of  a  glut  or  a  deficiency.  The  second 
would  seem  to  be  far  the  more  formidable  of  the  two  ;  yet  it  is 
the  former  that  is  the  most  dreaded  (except  when  money  is  the 
article),  and  the  only  one  which  is  usually  termed  a  crisis. 

Firstly,  glut  or  scarcity  of  commodities.  A  general  glut  of 
commodities  is  one  of  the  most  usual  forms  of  economic  crises, 
and  may  be  regarded  as  a  kind  of  chronic  malady  or  constitu- 
tional infirmity  attaching  to  modern  industry.  The  development 
of  wholesale  production,  mechanical  inventions,  and  improved 
means  of  communication  have  enabled  industry  to  throw  upon 
the  market  such  enormous  masses  of  products  that  the  consump- 

^  Also  Max  Wirth,  Gcschichte  der  Handelskrisen  (4th  eel.,  1S90).  —  J,  B. 


338  PRINCIPLES    OF    POLITICAL    ECONOMY. 

tion  is  not  large  enough  to  absorb  them  as  they  come  into  the 
market.  This  is  not  because  men's  wants  are  not  large  or  in- 
definitely extending,  but  because  to  find  a  sale  for  an  article 
requires  not  only  people  who  would  like  it,  but  also  people  who 
are  able  to  acquire  it.  Now,  the  increase  in  income  of  the  bulk 
of  the  population  has  not  usually  been  as  rapid  as  the  increase  in 
manufacture. 

It  is  on  this  point  that  the  collectivist  school  rely  entirely  for 
their  explanation  of  these  crises,  which,  according  to  them,  are 
destined  to  multiply  until  they  bring  about  the  complete  ruin  of 
modern  industrial  organization.  The  working-classes,  say  they, 
are  robbed  by  the  capitalists  of  about  half  the  produce  of  their 
labor,  and  therefore,  with  the  wages  they  receive,  •  are  unable  to 
buy  back  the  produce  of  their  labor  ;  hence  the  glut.  Were  they 
given  what  is  due  to  them,  and  their  powers  of  consumption  thus 
made  equal  to  their  powers  of  production,  there  would  be  no 
more  crises. 

This  explanation  seems  inadequate  ;  for,  even  granting  the  fact 
of  spoliation,  nevertheless  it  would  only  mean  a  transferrence  of 
the  power  of  consumption  from  one  class  to  another,  and  it  is  not 
clear  why  the  robbers  should  not  consume  as  much  as  the  robbed. 

To  proceed :  most  countries  nowadays  seek  to  close  their  mar- 
kets to  foreign  products,  at  the  same  time  trying  to  introduce  their 
own  products  into  other  lands ;  and  such  goods,  driven  back  here 
and  kept  out  there,  tend  to  accumulate,  as  if  in  tapless  reservoirs. 
In  order  to  succeed  in  finding  an  opening  for  their  products, 
and  to  have  them  gradually  absorbed  by  consumption,  producers 
are  therefore  obliged  to  lower  their  prices  ;  this  general  deprecia- 
tion of  prices  has,  as  inevitable  consequences,  lowering  of  profits, 
and  fiiilures,  on  the  one  hand  ;  lowering  of  wages,  and  the  throw- 
ing out  of  work,  on  the  other  hand. 

In  the  inverse  shape  of  a  scarcity,  the  crisis  may  sometimes  be 
very  formidable  ;  for  instance,  we  can  recollect  the  disasters  caused 
by  the  cotton  famine,  which  resulted  from  the  Secession  War  in 
the   United   States.     A  bad  harvest  of  cereals  may  bring  about 


PRODUCTION.  339 

public  disasters  in  poor  countries  such  as  India  and  Algeria ;  and 
even  in  rich  countries,  like  the  countries  of  Europe,  however 
slight  the  deficiency,  it  always  provokes  some  sort  of  crisis. 

It  often  happens  that  this  crisis  from  an  insufiiciency  of  produc- 
tion may  indirectly  produce  the  same  effects  as  a  crisis  from 
excess  of  production ;  namely,  a  general  glut  on  the  market  and  a 
depreciation  in  the  value  of  commodities.  However  paradoxical 
it  may  seem,  this  assertion  is  easily  explained.  For  a  deficiency 
in  the  corn  crop  causes  a  rise  in  the  price  of  corn ;  hence  all  con- 
sumers of  corn  whose  means  are  limited,  i.e.  by  far  the  greater 
part  of  mankind,  are  obliged  to  restrict  their  expenses  on  all  the 
other  articles  of  their  domestic  budgets.  Hence  a  mass  of  goods, 
being  no  longer  in  demand,  cannot  find  a  sale,  or  at  best  are  only 
sold  at  a  loss.  In  this  manner  famines  in  India  almost  inevitably 
produce  a  crisis  for  English  manufacturers. 

Secondly,  glut  or  dearth  of  capital.  Capital,  too,  is  an  article 
which  may  cause  certain  dangers,  if  it  is  produced  in  excess. 
No  doubt  we  could  not  have  too  much  capital,  just  as  we 
could  not  have  too  much  of  commodities  in  general ;  but,  as 
at  any  given  moment  there  may  be  too  large  an  amount  of 
goods  to  be  consumed,  so,  too,  there  may  be  too  much  capital 
to  be  profitably  used.  In  an  old  country,  where  saving  is  active 
and  rolls  up  in  snowball  fashion,  and  which  has  been  thoroughly 
worked  for  long  centuries  past,  and  therefore  cannot  offer  an 
unbounded  field  for  new  savings,  capital  tends  to  accumulate  in 
huge  quantities.  Naturally,  in  consequence  of  this  abundance  of 
capital,  interest  falls,  and  men  busy  themselves  to  find  more  pro- 
ductive investments ;  new  enterprises  are  floated  either  abroad 
or  at  home,  some  of  them  of  a  singular  nature,  some  altogether 
foolish,  and  finally  there  comes  what  in  stock  exchange  language 
is  called  a  "  crash."  Some  of  these  have  acquired  a  momentary 
renown  in  our  financial  history,  such  as  the  Overend  Gurney  crash 
in  1866,  the  Vienna  crash  in  1873,  ^^^  the  Paris  one  of  1882. 

However,  we  must  draw  this  distinction  between  commodities 
and  capital :  a  glut  of  commodities  depreciates  the  value  of  goods 


340  PRINCIPLES    OF    POLITICAL    ECONOMY. 

and  ruins  producers,  whereas  a  glut  of  capital  raises  the  value  of 
capital  and  enriches  capitalists.  This  result,  though  singular  at  the 
first  sight,  is  not  hard  to  account  for.  The  fall  in  the  rate  of  inter- 
est changes  the  rate  of  capitalization  for  the  future,  and  already 
ifivesied  capital  necessarily  profits  thereby.  Let  the  rate  of  inter- 
est be  supposed  to  be  5  per  cent ;  a  security,  then,  which  yields 
;^5o  is  worth  ^1000  ;  but  suppose  that  to-morrow,  in  consequence 
of  a  glut  of  capital,  the  rate  of  interest  on  new  undertakings  falls  to 
3  per  cent.  Then  the  security  which  gave  and  still  gives  ;^50 
will  be  worth  more  than  ;^iooo,  as  a  simple  rule-of-three  sum 
would  easily  show.  There  is  still  this  curious  contrast,  that,  whilst 
traders  lament  at  the  glut  of  goods,  capitalists  rejoice  at  the  glut 
of  capital,  though  indeed  a  crash  is  not  slow  in  causing  quite 
other  feelings. 

Capital  may  also  fall  short  of  requirements  in  consequence  of 
such  crashes  as  those  we  have  just  spoken  of,  or  after  a  war  which 
has  swallowed  up  large  quantities  of  it.  In  this  case  there  will  be 
a  crisis,  but  one  marked  by  opposite  symptoms  to  those  set  forth 
above ;  viz.  by  a  rise  in  the  rate  of  interest  and  of  discount,  and 
by  difficulty  in  obtaining  money. 

Once  more,  there  may  be  a  disturbance  of  the  normal  propor- 
tion which  ought  to  exist  between  fixed  and  circulating  capital, 
the  circulating  capital  being  of  insufficient  amount  relatively  to  the 
fixed.  This  has  happened  in  some  countries  which  have  been  so 
imprudent  as  to  devote  all  their  savings  to  the  construction  of  rail- 
ways, and  have  thus  not  had  a  farthing  to  spend  on  the  develop- 
ment of  their  industries  and  of  these  very  railway  lines. 

Third/y,  excess  or  dearth  of  coin.  Must  we  here,  too,  speak  of 
a  crisis  caused  by  excess?  The  general  public  will  not  allow 
that  the  fact  of  having  too  much  money  can  constitute  a  crisis, 
and  even  some  economists  do  not  readily  admit  that  we  can  talk 
of  superabundance  when  speaking  of  money. 

However,  it  is  undeniable  that  there  is  a  certain  proportion 
between  the  amount  of  money  which  ought  to  be  in  circulation  in 
a  country  and  the  needs  of  that  country,  and  that  if  this  (jnantity 


PRODUCTION.  341 

is  suddenly  increased  a  crisis  will  result,  which  will  take  the  form 
of  a  general  rise  of  prices,  and  will  have  very  serious  consequences 
for  all  consumers,  and  particularly  for  creditors  and  persons  living 
on  a  fixed  income. 

All  that  we  can  say  is,  that  it  is  the  easiest  thing  in  the  world 
for  a  country  to  get  rid  of  its  excess  of  money,  if  it  ever  reaches 
such  a  position,  and  that  the  very  force  of  circumstances  aids  in 
that  task. 

Every  one  will  agree  in  recognizing  that  an  excess  of  money 
may  cause  a  crisis  of  a  most  dangerous  kind,  if  this  money  is  in 
the  form  of  paper  money,  or  even  of  bank  notes.  But  we  need 
not  return  to  this,  for  we  have  already  shown  the  causes  of  such  a 
crisis  and  the  means  of  preventing  it. 

On  the  other  hand,  a  diminution  in  the  quantity  of  money 
always  occasions  the  greatest  alarm.  This  dread,  no  doubt,  is 
partly  occasioned  by  certain  preconceived  opinions  as  to  the  part 
played  by  money ;  yet  we  have  several  times  shown  that  such 
fears  are  not  without  foundation,  and  M.  de  Laveleye  {vide  op.  cit., 
pages  105,  117,  118)  regards  this  circumstance  as  the  only  essen- 
tial cause  of  all  crises.  When  the  balance  of  trade  has  long  been 
unfavorable  to  a  country,  and  its  reserve  of  coin  is  not  large,  a 
time  comes  when  it  has  no  longer  enough  money.  Then  the  bank 
reserve  diminishes,  the  exchange  becomes  unfavorable,  the  rate 
of  discount  has  to  be  raised,  and  many  merchants,  being  unable 
to  meet  their  engagements,  become  bankrupt.  These  are  called 
monetary  crises.  They  are  the  most  dangerous  of  all,  for  they  seem 
in  the  highest  degree  to  possess  an  epidemical  character,  but  they 
are  also  those  that  have  been  the  most  thoroughly  studied  :  their 
approach  can  be  the  most  easily  foreseen,  and  therefore  can  be 
the  most  successfully  forestalled. 

III.     Is  there  Reason  to  Fear  too  much  Production? 

The  question  asked  in  the  tide  appears  a  strange  one  after  what 
we  have  stated  in  the  previous  chapter ;  namely,  the  frightful  in- 


342  PRINCIPLES    OF    POLITICAL   ECONOMY. 

crease  in  consumption,  and  the  difficulty  production  has  in  coping 
with  it. 

Yet  the  possibihty  of  an  excess  of  production,  of  a  geney-al glut, 
is  a  nightmare  that  haunts  the  minds  of  all  business  men.  The 
feeling  is  not  hard  to  understand.  Since  every  producer  immedi- 
ately sees  that  his  goods  sell  the  better  the  scarcer  they  are  in  the 
market,  he  naturally  concludes  that  scarcity  is  a  good  and  abun- 
dance an  evil. 

Economists  have  long  tried  to  prove  to  them  that  the  multipli- 
cation of  products  is  a  good,  not  only  for  consumers,  but  also  for 
the  producers  themselves.  Of  course  they  do  not  profess  to  show 
that  there  may  not  be  an  excess  in  production  relatively  to  the 
requirements  in  any  given  industry,  or  that  such  excess  should  not 
be  regarded  as  an  evil.  That  would  be  to  act  in  flagrant  contra- 
diction of  the  facts  studied  in  the  last  chapter.  But  given  a  glut 
in  one  branch  of  production,  economists  consider  that  the  best 
remedy  for  the  ill  is  to  bring  about  a  proportionate  increase  in 
the  other  branches  of  production.  The  crisis  arising  from  abun- 
dance should  naturally  be  cured  by  abundance  itself;  similia 
similibus,  as  the  homoeopaths  say.  Thus  all  producers  are  in- 
terested in  making  production  as  abundant  and  as  varied  as  pos- 
sible. This  theory  is  known  as  the  law  of  markets  {la  theorie  des 
debouches).  It  was  first  promulgated  by  J.  B.  Say,  who  was 
extremely  proud  of  it,  asserting  that  "  it  would  change  the  face 
of  the  world."  It  may  be  expressed  as  follows  :  "  The  more  abun- 
dant and  varied  products  are,  the  more  markets  do  they  find." 

Although  this  assertion  seems  to  savor  strongly  of  a  paradox,  it 
is  nevertheless  well  founded.  In  order  to  understand  it  we  must 
eliminate  money,  and  suppose  that  products  are  exchanged  first- 
hand for  products,  as  is  done  under  the  system  of  barter.  Besides, 
this  abstraction  is  a  perfectly  legitimate  one  to  make,  for,  as  we 
have  seen,  no  one  exchanges  products  for  money  except  to  ex- 
change, sooner  or  later,  this  same  money  for  other  products,  and 
thus  the  instrument  of  exchange  can  be  justly  eliminated  from  the 
operation  in  the  mind's  eye. 


PRODUCTION.  343 

Let  us  take  a  trader  who  arrives  at  one  of  the  great  markets  of 
Central  Africa,  say  at  Rhadames  or  at  Timbuctoo.  Is  it  not  to 
his  advantage  to  find  the  market  as  well  stocked  as  possible  with 
products  in  large  numbers  and  of  great  variety?  No  doubt  he  has 
no  desire  to  find  large  quantities  of  the  very  conunodify  that  he 
has  to  offer,  —  say  muskets,  —  but  it  is  to  his  interest  to  find  as 
much  as  possible  of  all  the  rest  —  ivory,  gum,  gold  dust,  arachides, 
etc.  Each  new  commodity  which  appears  in  the  market  repre- 
sents an  investment,  or,  as  this  theory  says,  an  outlet  for  his  own 
article ;  the  more  there  are  of  them,  the  greater  the  value  of  his. 
And,  even  if  he  has  the  ill  luck  of  having  brought  too  many  guns, 
what  he  should  wish  for  is  that  others  should  also  have  brought 
too  much  of  their  goods  to  this  market.  In  that  case  the  markets 
will  no  longer  be  in  excess  relatively  to  the  other  goods,  for  as 
J.  B.  Say  admirably  says,  "  What  can  best  favor  the  sale  of  one 
article  is  the  production  of  another." 

The  same  takes  place  under  the  system  of  sale  and  purchase. 
Each  of  us  has  the  more  chance  of  disposing  of  our  goods  or  of 
our  services,  the  greater  the  resources  of  all  the  rest ;  and  the 
more  they  have  produced,  the  greater  their  resources  will  be. 
The  heart's  desire  of  a  producer  who  has  produced  a  commodity 
in  excess  is  that  all  other  producers  should  have  respectively  done 
the  same.  The  excess  of  some  will  correct  the  excess  of  others. 
Has  England  produced  too  much  cotton  stuffs  ?  If  by  good  luck 
India  has  grown  too  much  corn,  in  that  country  England  will  more 
easily  be  able  to  dispose  of  her  cotton. 

Thus,  thanks  to  the  prodigious  increase  of  its  mechanical 
resources,  industry  throws  upon  the  market  a  huge  mass  of 
goods.  The  result  is  a  general  glut.  But  why  ?  Because  agri- 
cultural production  has  not  marched  pari  passu.  Its  produce  has 
only  increased  in  a  slight  degree ;  its  value  has  risen,  compared 
with  the  value  of  manufactured  goods.  Hence  consumers,  who 
are  obliged  to  spend  far  more  on  the  means  of  subsistence,  have 
no  longer  enough  wealth  to  buy  much  of  manufactured  articles ; 
but,  were  agricultural  production  ever  to  progress  equally  with 


344  PRINCIPLES    OF    POLITICAL    ECONOMY. 

manufacturing  production  by  machinery,  equilibrium  would  be 
speedily  re-established.  For,  as  the  consumer  would  spend  less 
on  food,  he  would  easily  absorb  the  excess  of  manufactured 
articles. 

Lastly,  let  us  suppose  that  all  products,  without  exception,  in- 
crease in  quantity ;  it  may  still  happen  that  prices  may  fall  and 
that  there  may  be  a  general  glut.  What  is  the  explanation  ?  that 
on  our  hypothesis  one  product  alone,  money,  has  not  increased 
in  quantity.  There  is  therefore  a  change  in  the  respective  values 
of  money  and  of  commodities  in  general,  for  coin  being  relatively 
scarce,  prices  fall.  But  if  we  could  multiply  fnotiey  to  the  same 
extent  as  other  cominodities,  the  evil  would  be  cured,  for  then  the 
relation  of  values,  which  we  call  price,  would  not  be  changed  and 
the  crisis  would  not  be  produced. 

In  fine,  the  theory  of  markets  merely  tends  to  show  that  there 
is  nothing  to  fear  from  excess  in  production  whenever  the  increase 
in  production  operates  simultaneously  and  proportionately  in  all 
branches  of  production.  In  these  terms  is  expressed  an  incon- 
testable truth ;  the  human  race  runs  no  risks,  at  any  rate  for  a 
long  time  to  come,  of  growing  too  rich.  Unfortunately,  increase 
in  production  is  not  usually  exhibited  under  the  conditions  desired 
by  the  theory  of  markets.  It  is  an  extremely  rare  coincidence  to 
see  a  simultaneous  and  equal  increase  in  all  branches  of  produc- 
tion ;  the  previous  chapter  has  shown  us  that  in  this  respect 
agriculture  and  the  manufacturing  industry  are  strikingly  at  vari- 
ance. Increase  in  production  usually  takes  the  form  of  sudden 
strokes,  of  intermittent  and  local  movements  ;  hence  it  causes  those 
ruptures  of  equilibrium,  the  crises  already  analyzed,  and  therefore 
men  of  business  have  always  something  to  fear  in  this  regard. 


CHAPTER   III. 
PROGRESS  IN   PRODUCTION. 

I.     Current  Illusions  as  to  Economic  Progress. 

Progress  is  a  theme  upon  which  men  of  our  day  execute  the 
most  brilUant  variations ;  its  marvels  in  economics  are  ceaselessly 
extolled,  and  everything  seems  to  be  expected  from  it.  The 
socialists,  who  are  so  terribly  pessimistic  with  regard  to  the  actual 
state  of  social  development,  cherish  most  chimerical  hopes  as  to 
economic  progress.  Thus  they  picture  to  themselves  an  almost 
unlimited  increase  of  wealth  by  means  of  machinery,  whilst  a  day's 
labor  would  be  reduced  to  four  hours.  But  what  do  we  see  on  a 
closer  examination  ?  Truly  wonderful  improvement  in  the  means 
of  transport  and  of  inter- communication,  the  possibility  of  easily 
obtaining  the  products  of  the  Old  World  and  of  the  New  either 
for  our  necessities  or  for  our  luxuries,  the  lowering  of  the  price 
of  some  articles  of  manufacture,  a  great  development  in  what  we 
may  call  "  creature  comforts."  These  are  the  sum  total  of  the 
results  of  progress  in  matters  economic.  They  certainly  amount 
to  something,  but  to  nothing  of  the  nature  of  an  essential  change 
in  man's  condition,  nor  even  a  glimpse  of  such.  There  does 
not  appear,  then,  to  be  much  reason  for  great  pride  in  progress 
accomplished,  but  rather  for  some  surprise  that  such  compara- 
tively trifling  results  are  all  that  we  have  gained  from  the  scientific, 
mechanical,  and  industrial  development  achieved  in  the  present 
century. 

But  this  apparent  contradiction  is  not  hard  to  explain,  for 
progress  hitherto  has  worked  only  in  the  least  important  branches 
of  production,  and  those  that  are  least  essential  to  man's  existence 
and  his  real  welfare. 

345 


346  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Let  us  now  study  the  case  of  machinery,  for  in  that  form  prog- 
ress in  production  is  the  most  strongly  marked. 

According  to  the  statistics  issued  by  the  Office  of  Public  Works, 
there  are  now  in  France  about  5,000,000  horse-power,  the  force 
developed  by  which  may  be  calculated  to  be  that  exerted  by 
100,000,000  men.  For  one  horse-power  is  regarded  as  doing  the 
work  of  three  average  horses,  and  the  strength  of  one  horse  is 
estimated  to  be  seven  times  greater  than  that  of  a  man. 

Now  as  there  are  not  in  France  as  many  as  10,000,000  adults, 
we  may  say  that  the  productive  power  of  the  country  has  been 
multiplied  by  machinery  in  the  proportion  of  i  to  10;  or  if  the 
more  picturesque  metaphor  be  preferred,  that  every  French  work- 
man has  henceforward  ten  slaves  in  his  employ,  which  ought  to 
give  him  a  position  equivalent  to  that  of  the  Roman  patricians  ; 
that  is  to  say,  allow  him  to  amass  the  pleasures  afforded  by  wealth 
and  those  enjoyed  during  leisure. 

Unfortunately  there  is  much  of  the  imaginary  in  this  picture, 
as  is  easily  shown  by  an  analysis  of  the  above  statistics.  Almost 
the  whole  of  this  enormous  force  is  applied  solely  to  transport  by 
land  or  sea,  to  the  amount  of  nearly  4,000,000  horse-power,  seven- 
eighths  of  which  are  absorbed  by  locomotives.  The  4,000,000 
horse-power  employed  in  transport  have  produced  an  important 
revolution  in  some  respects.  They  have  greatly  increased  the 
solidarity  of  the  human  race  by  doing  away  with  the  difficulties 
that  distance  presented  to  the  free  communication  of  individuals, 
to  the  exchange  of  products,  and  to  spreading  abroad  of  new 
ideas.  From  this  point  of  view,  the  use  of  machinery  has  rendered 
a  moral  service  of  enormous  importance,  but  it  can  hardly  be  said 
to  multiply  production. 

Moreover,  we  must  concur  with  M.  Leroy-Beaulieu's  remark, 
that  there  are  many  instances  of  double  uses.  Much  machinery 
is  entirely  devoted  to  the  production  of  other  machines  or  to  the 
extraction  of  coal  wherewith  to  feed  them  (see  his  Sisyphisme  et 
Pa2ipefisme) . 

The  only  products,  the  increase  in  which  can  powerfully  improve 


PRODUCTION.  347 

the  condition  of  the  working  classes,  are  agricultural  produce, 
for  the  primary  condition  of  material  welfare  is  food,  and  if  possi- 
ble good  food  and  plenty  of  it.  Now  what  results  have  the  use 
of  machinery  produced  in  agriculture?  Great  ones,  no  doubt,  in 
new  countries  such  as  the  United  States,  where  the  wide  stretches 
of  land  do  not  always  find  enough  arms  to  till  them.  But  of  little 
importance  in  countries  which  are  already  cultivated  and  peopled. 
In  France  there  are  not  100,000  horse-power  employed  in  agricul- 
ture, and  scarcely  any  of  them  have  tended  to  increase  produc- 
tion. Mowing-machines,  threshing-machines,  reaping-machines, 
do  not  increase  the  crop  of  corn  by  one  grain ;  they  only  econo- 
mize manual  labor.  No  mechanical  or  chemical  methods  have 
yet  been  found  for  the  manufacture  of  food,  in  spite  of  the  high 
pitch  of  the  art  of  adulteration. 

Still  the  following  question  is  always  worthy  of  our  considera- 
tion. Since  the  hmitation  encountered  by  agricultural  industry 
arises  from  the  fact  that  its  materials  are  living  things,  why  should 
it  not  attempt  to  overcome  this  obstacle  by  boldly  dispensing  with 
the  assistance  it  receives  from  the  mysterious  forces  of  life,  and 
endeavor  to  manufacture  de  novo  the  food-supplying  substances, 
just  as  a  manufacturer  fabricates  chemical  products  ? 

We  know  that  all  the  tissues  of  living  beings,  whether  animal  or 
vegetable,  are  almost  exclusively  composed  of  oxygen,  hydrogen, 
nitrogen,  carbon,  and,  in  a  very  small  proportion,  of  a  few  mineral 
salts,  all  of  which  are  elements  which  may  be  regarded  as  existing 
in  excessive  quantities  in  the  earth's  crust  and  in  the  atmosphere. 
Theoretically,  then,  our  problem  does  not  appear  to  be  insoluble. 
If,  indeed,  any  chemist  were  ever  to  solve  it,  he  would  have 
achieved  a  far  greater  thing  than  the  magnum  opus  of  the  alche- 
mists ;  he  would  have  found  at  the  bottom  of  his  crucible  far  more 
than  the  solution  of  a  chemical  problem  or  even  of  the  problem 
of  life ;  he  would  have  solved  the  social  problem,  or,  at  any  rate, 
would  have  changed  from  base  to  apex  all  the  laws  of  political 
economy.  If  men  are  ever  destined  to  produce  their  means  of 
subsistence  by  purely  industrial  methods,  agriculture  would  be- 


348  PRINCIPLES    OF    POLITICAL    ECONOMY. 

come  a  thing  of  nought ;  and  as  man  would  only  claim  from  the 
earth  space  for  his  foot  to  tread  and  for  his  dwelling  to  occupy, 
each  acre  of  land  would  be  able  to  support  as  dense  a  population 
as  is  now  heaped  together  in  the  most  crowded  quarters  of  our 
great  cities.  But  will  that  day  ever  come?  It  is  gravely  to  be 
doubted ;  and  up  to  the  present,  in  spite  of  some  brilliant  at- 
tempts, chemistry  has  not  been  able  to  turn  the  flank  of  the  law 
represented  by  the  old  adage,  Omne  vivum  ex  vivo. 

The  same  may  be  said  of  an  industry  which  is  likewise  of  capital 
importance  —  house-building.  Machinery  is  scarcely  applied  to 
this  class  of  production,  save  for  exceptional  buildings.  We  put 
up  our  houses  as  was  done  in  the  days  of  Noah,  by  piling  up  on 
one  another  stones  or  bricks,  and  joining  them  with  cement.  The 
result  is  that  an  increase,  proportionate  to  requirement,  is  not 
effected  in  the  number  of  comfortable  houses,  which  is  one  of  the 
essential  conditions  for  happiness,  health,  family  life,  and  morahty. 
House  rent  is  still  a  heavy  burden  to  the  rich  and  ruin  to  the  poor, 
and  the  rent  of  houses  grows  even  dearer  than  the  price  of  food. 
Nor  are  houses  constructed  according  to  mechanical  principles. 
Perhaps  that  result  might  follow  if  a  general  use  were  to  be  made 
of  houses  composed  of  iron  or  sheet-iron,  which  could  be  taken  to 
pieces,  and  moved  from  place  to  place  according  to  rcciuirements. 
These  attracted  attention  at  the  last  Paris  Exhibition.  Their 
adoption  would  revolutionize  matters. 

II.     The  Disadvantages  necessarily  involved  in  All  Prog- 
ress in  Production. 

Besides  confessing  that  the  results  of  progress  are  far  smaller 
than  is  generally  believed,  we  must  further  admit  that  its  results 
are  always  disastrous  to  certain  classes  of  people.  For  the  better 
understanding  of  this,  we  must  explain  and  define  what  is  meant 
by  progress  in  production.  It  consists  simply  in  di?ninishing  the 
amount  of  labor  necessary  to  produce  a  given  result. 

The  most  striking  example  that  can  be  cited  is  the  invention  of 


PRODUCTION.  349 

machines  which  multiply  man's  strength  tenfold  and  a  hundred- 
fold. 

For  instance,  certain  armored  ships  have  machinery  of  10,000 
horse-power.  Each  horse-power  is  equal  to  the  strength  of  about 
ten  men,  and  as  it  is  able  to  work  ceaselessly  night  and  day,  the 
figure  must  be  doubled,  making  it  equal  to  twenty  men.  Such 
vessels,  then,  are  moved  by  a  force  equal  to  that  of  at  least 
200,000  rowers.  If  we  suppose  that  there  are  100  engineers  or 
stokers,  the  strength  of  each  of  them  may  be  regarded  as  being 
multiplied  by  2000. 

One  number  of  the  Paris  Figaro,  together  with  the  supplement, 
makes  240  pages  of  print  of  octavo  size.  If  we  grant  that  100,000 
copies  are  struck  off,  that  means  that  in  one  night  26,000,000 
pages  are  printed,  or  the  equivalent  of  40  or  50  volumes.  To  copy 
them  in  the  same  space  of  time,  i.e.  in  six  hours,  we  should  have 
to  use  an  army  of  500,000  copyists.  If,  then,  we  suppose  that 
there  are  100  men  employed  at  the  printing  office,  each  printer 
develops  a  power  of  labor  equal  to  that  of  5000  copyists. 

Still,  all  improvements  in  the  organization  of  labor,  —  e.g.  division 
of  labor,  which  facihtates  a  better  use  of  each  man's  time  and 
tastes ;  wholesale  production,  which  economizes  sites  and  capital ; 
exchange,  and  particularly  international  exchange,  which  puts  to  a 
profitable  use  the  natural  resources  of  respective  countries ;  the 
substitution  of  paper  money  or  of  credit  for  metallic  money; 
mechanisms  such  as  co-operative  societies,  which,  by  doing  away 
with  middlemen,  tend  to  put  consumers  and  producers  into  direct 
relations;  railways,  telegraphs,  telephones,  —  all  these  things  (in 
fine)  have  no  other  object  than  to  save  a  certain  amount  of  time, 
trouble,  or  expense,  in  other  words,  of  labor ;  just  as  we  have 
shown  to  be  the  case  for  each  one  of  these  modes  of  production. 

Now  it  is  certainly  a  great  gain  to  be  able  to  reduce  the  amount 
of  labor  necessary  for  a  given  result,  to  procure  the  same  satisfac- 
tion with  less  effort ;  for  it  is  a  diminution  of  pain ;  it  is  the 
setting  free  of  a  new  force,  which  can  be  utilized,  if  need  be,  for 
new  production.     It  is  certainly  all  this ;  but,  given  our  present 


350  PRINCIPLES   OF   POLITICAL   ECONOMY. 

economic  organization,  which  is  based  on  division  of  labor  and  on 
individual  property,  it  is  found  that  this  general  good  takes  the 
shape  of  evil  for  many  individuals.  For  by  rendering  useless  a 
certain  amount  of  labor,  it  at  one  and  the  same  time  rendejs  use- 
less a  certain  number  of  laborers,  and  obliges  them  to  seek  pain- 
fully for  some  other  way  of  gaining  a  livelihood. 

The  reason  of  this  is  simple  enough.  Each  of  us  lives  from 
the  income  obtained  by  his  respective  work  in  some  particular 
occupation.  Here  is  a  workwoman  of  Auvergue  who  makes  lace  ; 
there  is  a  peasant  of  Vaucluse  who  cultivates  madder.  Now,  in 
consequence  of  an  improvement  in  production,  such  as  the  inven- 
tion of  a  lace-making  machine  or  the  discovery  in  coal-refuse  of 
aniline  red,  this  particular  work  is  made  useless  for  our  specified 
workman  to  do.  At  the  same  moment  the  source  of  his  income 
is  dried  up.  No  doubt  he  will  always  be  able  to  try  and  employ 
his  labor  elsewhere  by  seeking  for  some  other  occupation  ;  but 
such  changes  are  never  easy  j  and  for  those  who  have  nothing  laid 
by,  i.e.  for  workingmen,  this  want  of  work  will  necessarily  cause 
suffering  and  misery.  Similarly,  the  facility  of  transport  that  now 
enables  us  to  obtain  at  a  low  rate  Californian  corn  and  Chinese 
silk  ruins  the  French  landowner  who  used  to  grow  corn  or  rear 
silk-worms.  Once  again,  in  the  same  way,  the  development  of 
co-operative  societies  ruins  a  large  number  of  small  shopkeepers. 

These  are  by  no  means  contingent  results  which  might  or  might 
not  come  to  pass ;  they  are  the  necessary  consequences  of  the 
double  principle  on  which  modern  society  is  based,  —  private 
property  and  division  of  labor. 

If  there  was  no  division  of  labor,  if  each  man  produced  only 
for  his  own  consumption,  there  would  be  no  such  results  as  the 
above.  For  Robinson  Crusoe  on  his  island  there  was  unmixed 
benefit  in  every  machine,  in  every  sort  of  invention,  that  enabled 
him  to  produce  more  with  less  labor.  He  had  everything  to  gain 
and  nothing  to  lose. 

AVere  there  no  private  property,  i.e.  if  men  lived  under  com- 
munism once  mure,  these  results  would  never  come  to  pass.     For 


PRODUCTION.  351 

the  Icarian  or  the  dweller  in  the  Phalanstery,  who  knows  that  his 
cover  is  always  laid  at  the  common  table,  it  matters  nothing  that 
any  invention  should  arise  and  render  his  labor  useless.  If  the 
joint  society  wishes  him  to  labor,  it  will  find  him  some  other  work  ; 
if  it  is  unable  to  find  any,  so  much  the  better  for  him ;  he  can 
then  fold  his  arms  in  peace. 

Still  we  must  not  be  led  to  conclude,  as  communists  are  too 
eager  in  doing,  that  since  private  property  is  the  real  culprit,  it 
must  be  done  away  with.  Why  not  say  the  same  of  division  of 
labor  and  propose  to  stop  it  likewise,  since  it  is  in  equal  measure 
responsible  for  this  state  of  things  ?  All  that  we  can  say  is  that 
progress  in  our  world  is  always  accompanied  by  evils,  and  that  it 
makes  the  human  race  pay  dearly  for  the  benefits  it  gives.  That 
is  a  most  patent  commonplace,  but  some  commonplaces  are  also 
truths,  and  this  is  of  the  number. 

Further,  progress  is  not  only  paid  for  by  privations  and  by  want 
of  work ;  it  is  often  bought  by  the  price  of  blood.  To  take  only 
machinery :  there  is  scarcely  a  day  when  several  workmen  have 
not  their  ribs  broken  by  the  blows  of  the  engine-buffer,  or  are  not 
killed  by  an  explosion  of  fire-damp,  or  blown  to  pieces  by  the 
bursting  of  a  boiler,  or  made  mince-meat  of  by  a  toothed  wheel. 
The  construction  of  every  mile  of  railroad  costs  on  the  average 
the  life  of  one  man,  and  the  opening  up  of  every  100  miles  five 
or  six  accidents  yearly.  As  there  are  now  500,000  miles  of  rail 
in  the  world,  500,000  men  must  have  been  sacrificed  in  their 
making,  and  30  out  of  a  1000  every  year  for  working  them.  The 
most  sanguinary  of  wars  must  yield  the  palm  to  this. 

III.    The  Question  of  Machinery. 

The  opposition  just  pointed  out  between  the  interests  of  society 
and  the  interests  of  individuals  is  highly  displeasing  to  economists, 
especially  to  those  of  the  optimistic  school,  who  regard  harmony 
in  things  economic  as  an  article  of  faith.  It  has  therefore  been 
their  endeavor  to  show  that  economic  progress  and  particularly 


352  PRINCIPLES    OF    POLITICAL    ECONOMY. 

machinery  (for  there  the  shoe  is  said  to  pinch,  though  all  im- 
provements in  production  fall  under  the  same  censure)  do  no 
harm  at  all  to  the  working  classes/ 

The  following  are  the  three  arguments  they  adduce  :  — 

Firstly,  lowering  of  prices.  Every  mechanical  invention,  say 
they,  has  as  its  result  a  lowering  of  the  cost  of  production  of  the 
article,  and  consequently  of  its  value.  The  workman  then  profits 
qua  consumer  from  the  fall  in  prices  just  as  much  as  he  loses  qua 
producer. 

It  is  indisputable  that  every  improvement  in  production,  espe- 
cially in  the  sphere  of  mechanical  invention,  brings  about  a  fall 
in  prices ;  but  does  this  really  give  any  compensation  to  the 
workman,  the  value  of  whose  work  is  thereby  depreciated  ? 

There  will  certainly  be  no  compensation  if,  as  is  highly  probable, 
the  product  in  question  is  not  one  that  he  is  in  the  habit  of 
consuming.  Lace-making  by  machinery  has  certainly  lowered  the 
price  of  lace  ;  but  as  the  poor  woman  who  used  to  make  them  is 
not  in  the  habit  of  decking  herself  with  lace,  she  assuredly  gains 
nothing  by  the  invention. 

Even  admitting  that  the  product  is  consumed  by  the  laborer, 
it  may  be  only  occasionally  or  slightly  used  by  him,  and  then  the 
compensation  is  purely  derisory.  The  stocking-knitter,  who  loses 
her  wages  after  the  invention  of  a  knitting-machine,  will  not 
readily  find  much  consolation  in  the  prospect  of  being  able  here- 
after to  buy  her  stockings  cheap  at  the  hosier's. 

For  the  compensation  to  be  a  real  one,  it  would  be  necessary 
for  mechanical  progress  to  be  shown  at  one  and  the  same  time  in 
all  branches  of  production,  so  that  the  resulting  fall  in  prices 
might  be  both  general  and  simultaneous.  Then,  indeed,  it  might 
be  said  that  the  workman  would  not  suffer  from  receiving  only 
half  his  former  wages,  if  concurrently  all  his  expenses  were  reduced 
by  half.  The  nominal  wages  would  have  altered,  the  actual  wages 
would  have  remained  the  same. 

1  With  some  reservations  Mr.  Edward  Atkinson  may  be  taken  as  represent- 
ing the  optimists  in  Ameriea,  and  Mr.  Giffcn  in  England.  —  J.  B. 


PRODUCTION.  353 

But  the  very  enunciation  of  this  hypothesis  is  enough  to  show 
its  chimerical  nature.  We  have  already  seen  that  mechanical 
discoveries  are  not  made  in  all  branches  of  production,  but  arise 
only  in  a  few  of  them,  and  that  virtually  they  do  not  affect  in  the 
least  the  expenses  which  occupy  the  foremost  place  in  the  work- 
man's life  and  weekly  budget ;  viz.  food  and  housing.  We  have 
previously  said  that,  according  to  his  position,  these  expenses 
absorb  from  60  to  75  per  cent  of  the  workman's  income.  Thus, 
as  regards  four-fifths  of  his  consumption  he  receives  no  compen- 
sation at  all. 

Secondly,  increase  of  production.  The  optimists  further  say  that 
every  mechanical  invention,  by  virtue  of  its  causing  a  fall  in  price, 
must  involve  a  corresponding  increase  in  sales,  and  that  therefore, 
in  the  long  run,  it  brings  back  the  laborers  it  had  momentarily 
deprived  of  their  occupation.  Instead  of  taking  work  from  them, 
it  makes  work  for  them.  There  are  hosts  of  examples  of  this  — 
the  multiplication  of  books  since  .  the  invention  of  printing,  of 
cotton-stuffs  since  the  introduction  of  weaving-machines,  etc. 

This,  indeed,  is  a  new  sort  of  compensation,  but  it  is  no  more 
satisfactory  than  the  above,  and  there  are  many  reasons  for  this. 

First  of  all,  though  increase  in  sales  is  the  usual  consequence  of 
lowering  of  price,  this  is  not  invariably  the  case. 

Whenever  a  product  answers  only  to  a  limited  want,  its  multi- 
plication is  therefore  equally  limited.  The  instance  of  coffins  has 
become  classical ;  but  the  same  holds  good  of  many  other  articles 
—  com,  salt,  some  chemical  products,  etc,  A  fall  in  the  price  of 
these  would  only  slightly  increase  their  consumption. 

Whenever  one  industry  is  bound  up  with  other  industries  it  can 
only  increase  its  production  accordingly  as  they  increase  theirs. 
This  is  of  very  frequent  occurrence.  The  production  of  bottles 
and  wine-casks  is  limited  by  that  of  wine,  and,  however  much  the 
price  of  these  bottles  and  casks  may  fall,  not  an  inch  more  of 
them  will  be  sold  if  there  is  no  more  wine  to  put  in  them.  Simi- 
larly, the  production  of  watch-springs  is  limited  by  that  of  watches  ; 
the  production  of  bolts  by  that  of  rails  and  of  boilers ;  and  again, 


354  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  production  of  the  last  named  is  in  its  turn  restricted  by  other 
causes  independent  of  their  prices,  e.g.  the  improvement  of  trans- 
port, the  number  of  mines,  etc. 

Further,  sometimes  mechanical  invention  has  not  caused  an 
increase  in  production,  but  has  merely  led  to  a  diminution  of 
manual  labor.  Most  agricultural  machines  —  mowing,  threshing, 
and  reaping-machines  —  do  not  add  one  grain  to  the  crop.  Steam- 
cranes  on  quays,  used  for  the  unloading  of  goods,  evidently  do 
not  increase  the  quantity  of  such  goods. 

Even  admitting  an  increase  in  consumption,  proportionate  or 
more  than  proportionate  to  the  fall  in  prices,  it  will  require  a  long 
time,  perhaps  some  generations,  before  the  completion  of  this 
evolution.  Time  is  needed  for  the  former  prices  to  fall,  more 
time,  indeed,  seeing  that  the  biassed  opposition  of  manufacturers 
and  the  existence  of  acquired  habits  will  tend  to  retard  the  fall. 
Competition  will  finally  get  the  upper  hand,  but  rival  industries 
are  not  built  up  in  a  day.  Further  time  will  be  needed  for  the 
fall  of  prices  to  enable  the  products  to  penetrate  those  new  strata 
of  society  which  do  not  change  in  a  brief  day  their  tastes  or  their 
wants.  Now  during  all  this  time  what  will  be  done  by  the  work- 
man who  lives  from  hand  to  mouth  ?  There  will  perhaps  be  some 
compensation  for  his  grandchildren,  but  there  will  be  none  for  him. 

Thirdly,  increase  in  the  wages-fund.  Every  employment  of 
machinery  that  economizes  manual  labor  necessarily  involves,  so 
the  optimists  think,  a  gain  for  some  one,  which  is  realized  either 
by  the  producer,  in  the  shape  of  extraordinary  profits,  if  he  con- 
tinues to  sell  his  goods  at  the  old  price,  or  by  the  consumer,  in 
the  form  of  smaller  expenses,  if,  as  is  most  probable,  the  price  of 
the  article  falls  to  the  level  of  the  new  cost  of  production. 

The  money  which  is  so  much  the  less  in  the  pockets  of  the. 
men  who  are  turned  away  is  not  lost,  then ;  it  reappears  in  the 
manufacturer's  bank  book  as  an  increase  in  income,  or  in  the  con- 
sumers' purses  as  a  saving  that  has  been  effected.  But  what  will 
the  manufacturer  do  with  his  increased  income,  or  the  consumer 
with  his  savings  ?    They  will  either  invest  them  or  sj)end  them  ; 


PRODUCTION.  355 

there  is  no  other  alternative.  Now  in  either  case  this  money  must  go 
to  encourage  some  industry  and  develop  production,  either  by  buy- 
ing new  products  or  by  contributing  to  the  production  of  new  capital. 
(See  below,  "What  is  Investment?"  page  390.)  Labor,  therefore, 
will  recoup  itself  by  this  increase  in  production  for  its  former  losses. 

The  argument  goes  on  to  say  that,  when  once  this  evolution  has 
been  perfected,  the  sum  which  was  taken  from  the  wages-fund  by 
the  mechanical  inventions  will  end  by  returning  to  labor.  The 
result  of  every  mechanical  invention  is  to  render  available,  to  set 
free,  as  a  chemist  would  say,  not  only  a  certain  quantity  of  labor, 
but  also  a  certain  amount  of  capital ;  and,  as  these  two  elements 
hare  a  great  affinity  for  one  another,  and  even  cannot  subsist 
apart,  they  always  end  by  meeting  again,  and  once  more  combin- 
ing together. 

The  above  reasoning  is  perfect  from  a  theoretical  point  of  view, 
but  we  must  ask,  "  How  and  when  will  this  combination  be 
effected?"  Perhaps  in  ten  years  and  at  the  other  end  of  the 
world.  Possibly  the  consumers'  savings  will  be  employed  in  the 
cutting  of  a  canal  at  Panama  or  in  the  making  of  a  railway  in 
China.  Capital,  when  once  set  free,  can  easily  find  investment ; 
it  has  wings,  can  take  flight,  and  settle  where  it  wills.  Unfortu- 
nately the  workman  is  not  equally  mobile  or  movable.  He  is  not 
fit  for  every  kind  of  work,  and  cannot  so  easily  go  to  the  ends  of 
the  earth  to  seek  it.  In  the  long  run  that  will  be  done,  if  not  by 
him,  at  least  by  his  successors,  for  it  must  be  so.  Yet  the  evolution 
will  be  a  long  and  painful  one.     That  is  all  that  we  assert. 

The  following  can  be  our  only  answer  to  this  sombre  question 
of  machinery  :  probably  the  great  mechanical  and  economic  trans- 
formation which  has  been  witnessed  by  our  century  is  now  ap- 
proaching its  termination. 

History  shows  us  that  in  the  economic  evolution  of  our  race 
periods  of  rapid  change  have  been  followed  by  long  periods  of  a 
stationary  nature.  It  is  therefore  probable  that  the  huge  economic 
revolution  of  our  days  will  be  followed  by  a  long  period  of  rest,  or 
at  any  rate  of  very  leisurely  progress,  resembling  the  thousand 


356  PRINCIPLES    OF    POLITICAL    ECONOMY. 

years  and  more  that  preceded  it.  The  invention  of  the  steam- 
engine  has  already,  or  at  least  will  soon  have,  produced  most  of 
the  consequences  that  can  be  expected  from  it.  Is  it  replied, 
"Another  will  be  invented"?  What  do  we  know  as  to  that? 
And,  even  were  such  a  prediction  to  be  realized,  it  is  certain  that 
the  substitution  of  this  unnamed  machine  for  the  steam-engine 
would  not  produce  a  revolution  comparable  to  that  effected  by 
the  substitution  of  steam  for  manual  labor.  Within  the  next  half- 
century  the  whole  world  will  have  been  girded  and  interlaced  by 
the  network  of  electric  telegraphs  and  of  railways.  Here  there  is 
a  definitive  transformation,  which  will  not  need  to  be  done  over 
again.  Let  us  grant  that  balloons  will  prove  capable  of  guidance. 
Can  we  imagine  that  conveyance  of  travellers  and  of  merchandise 
by  balloon  will  have  the  same  economic  consequences  as  the 
replacing  of  the  high-road  by  the  railroad?  Finally,  in  a  few 
generations  hence,  the  human  species  will  be  settled  on  all  the 
available  space  that  still  remains  upon  the  surface  of  our  planet. 
There  will  be  no  more  vacant  land,  and  there  will  be  an  end  to 
the  competition  of  new  countries  on  our  old  markets.  Every- 
thing, then,  leads  us  to  believe  that  our  grandchildren  will  not  be 
hurried  along  by  the  same  whirlwind  as  we  have  been,  and  that 
they,  like  our  fathers,  will  be  able  to  live  a  calmer  life. 

IV.     The  Future  of  Production. 

If  we  endeavor  to  forecast  what  kind  of  future  is  in  store  for 
modern  society  from  an  industrial  point  of  view,  we  are  confronted 
by  two  antagonistic  opinions. 

The  public  as  a  whole  (and  most  of  the  socialists  share  the  same 
views)  is  full  of  a  boundless  confidence  in  the  progress  of  the 
mechanical  sciences  and  arts  and  in  the  omnipotence  of  the  human 
genius.  Hence  arises  the  pleasant  belief  that  the  multiplication 
of  wealth  will  become  so  easy  that  the  human  race  will  be  enabled 
to  live  in  plenty,  if  only  each  man  has  to  work  merely  three  or  foi"" 
hours  a  day  with  an  absence  of  actual  fatigue. 


PRODUCTION.  357 

Others  think  that  the  present  production  of  weaUh  would  even 
now  be  enough  to  satisfy  the  legitimate  wants  of  all  men,  if  it  were 
better  distributed,  and  that  our  aim  should  be  to  moderate  wants 
rather  than  to  multiply  wealth.  John  Stuart  Mill,  the  eloquent 
apostle  of  this  doctrine,  believed  that  we  are  approaching  a  sta- 
tionary period  in  which  the  stream  of  human  industry  will  finally 
spread  out  into  a  stagnant  sea,  and  when  we  shall  cease  to  see  one 
sex  occupied  in  money-hunting,  and  the  other  sex  occupied  in 
rearing  money-hunters.  He  held  "that  it  is  only  in  backward 
countries  of  the  world  that  increased  production  is  still  an  im- 
portant object ;  in  those  that  are  advanced,  what  is  economically 
needed  is  a  better  distribution  of  wealth."  {^Political Econofuy, 
IV,  vi,  sect.  2.)  That,  in  our  opinion,  is  a  cardinal  error, 
which  also  forms  the  basis  of  all  systems  of  socialism. 

Though  these  two  theories  lead  us  by  apparently  divergent 
paths,  yet  they  both  show  us  the  same  view  of  the  future.  They 
picture  to  us  a  social  state  in  which,  either  from  the  abundance  of 
wealth  or  from  the  moderation  of  their  desires,  men  will  work  less. 
Then,  as  the  Greeks  did  in  the  Market  Place  or  under  the  P  prch, 
the  hours  taken  away  from  material  labor  will  be  devoted  to  polit- 
ical life,  to  relaxation  in  the  way  of  art,  to  gymnastics,  and  to  the 
noble  speculations  of  high  thinking.  The  only  difference  will  be 
that  what  was  formerly  the  privilege  of  the  few  will  become  the 
portion  of  all. 

Unless  we  are  altogether  to  despair  of  the  future  of  mankind, 
we  must  hope  that  that  will  be  the  case  some  day ;  but  it  may  be 
long  before  that  day  shall  dawn.  We  cannot  reckon  upon  the 
limitation  of  wants,  for  we  have  already  seen  that  man's  wants  are 
from  their  very  nature  capable  of  indefinite  extension,  and  that 
they  increase  in  direct  ratio  to  individual  development.  Still  less 
can  we  make  sure  of  an  unbounded  multiplication  of  wealth,  for 
we  are  cognizant  of  the  current  illusions  with  regard  to  progress, 
and  are  too  well  aware  that  in  spite  of  all  this  progress  the  quan- 
tity of  wealth  that  exists  is  ridiculously  insufficient,  and  that  even 
in  those  societies  which  are  the  most  proud  of  their  knowledge 


358  PRINCIPLES    OF    POLITICAL    ECONOMY. 

and  the  most  vain  of  their  luxury.  The  human  race  is  still  like 
Robinson  Crusoe  in  the  first  years  of  his  solitude  on  his  island. 
The  day  has  not  come  for  them  to  rest.  When  a  sufficient  amount 
of  articles  of  subsistence  has  been  acquired  to  maintain  those  who 
still  lack  them,  then  indeed  mankind  may  have  the  right  to  prefer 
repose  to  labor.  It  should  not  be  forgotten  that  in  the  world  at 
this  present  moment  there  are  something  like  a  thousand  millions 
of  men  who  are  more  or  less  unsupplied  with  the  necessaries  of 
existence.  Would  that  we  had  but  to  provide  for  the  wants  of  the 
present  generation  ;  but  alas  !  our  numbers  are  ceaselessly  increas- 
ing, and  the  end  that  we  seek  shrinks  from  our  grasp  into  the 
future.^ 

1  We  might  quote  in  this  connection  the  concluding  lines  of  Antipater's 
epigram  (Anthology,  ix,  418)  : 

"  yfv6fjied'  apxaiov  0t6rov  ndXiv,  (I  Si'xa  Mi^X^"" 
daivvcrdai   AtjoCs   fpya   •JiSatr/iJ^uefla." 


BOOK    III. 

CONSUMPTION. 

I.    How  Wealth  can  be  employed. 

The  theory  of  consumption  has  to  deal  with  the  various  uses 
that  can  be  made  of  wealth,  and  has  to  show  us  in  particular  what 
are  the  economic  as  well  as  the  moral  reasons  which  should  lead 
us  to  choose  the  respective  modes  of  employment. 

Such  a  question  may  appear  to  be  somewhat  difficult  to  answer, 
for  at  first  sight  the  uses  that  we  can  make  of  wealth  seem  to  be 
infinitely  varied.  However,  a  nearer  glance  easily  convinces  us 
that  all  these  diverse  modes  of  employment  can  be  readily  classed 
under  a  very  small  number  of  heads. 

Let  us  study  the  probable  action  of  Robinson  Crusoe,  say  with 
regard  to  a  few  grains  of  corn  picked  up  by  him  in  the  neighbor- 
hood of  his  cave.  He  clearly  had  to  choose  between  the  three 
following  courses  :  — 

He  might  eat  the  grains  of  corn,  i.e.  employ  them  immediately 
towards  the  satisfying  of  his  wants. 

He  might  sow  them,  i.e.  employ  them  for  the  production  of 
further  wealth. 

Thirdly,  he  might  do  nothing  at  all  with  them,  i.e.  keep  them 
and  put  them  aside  as  a  reserve  for  the  future. 

Similarly,  each  man  living  in  society  can  employ  wealth  in  one 
or  other  of  these  three  ways.  There  is  no  other  possible  mode. 
We  say  this  in  spite  of  the  following  suggestions  :  — 

It  might  be  said  that  a  man  might  destroy  his  wealth,  e.g.  by 
throwing  it  into  the  sea.  But  generally  speaking  the  personal 
interests  of  the  owner  are  a  sufficient  guarantee  that  he  will  not 

359 


360  PRINCIPLES    OF    POLITICAL    ECONOMY. 

resort  to  this  possible  mode  of  action.  However,  the  public  wel- 
fare demands  that  the  legislator  should  be  armed  with  powers  to 
prevent  such  destruction.  These  powers  are  exerted  in  certain 
instances :  if  a  man  sets  fire  to  his  house  or  his  crops,  he  is  amen- 
able to  law,  and,  in  France,  the  spendthrift  who  wastes  his  capital 
may  be  restrained  from  so  doing,  on  his  relations  appealing  to  the 
tribunals.  It  is  possible  to  think  that  too  much  leniency  is  shown 
in  these  matters  owing  to  the  superstitious  respect  which  lawyers 
have  for  the  sacred  rights  of  property.  Still,  our  subject  in  this 
place  is  the  employment  and  not  the  destruction  of  wealth. 

It  might  be  argued  that  the  man  could  give  his  wealth  to 
another.  Certainly  he  might ;  but  then  the  recipient  will  be  put 
in  the  giver's  place,  and  will,  in  his  turn,  be  restricted  to  a  choice 
between  the  three  ways  of  employing  wealth  that  we  have  set 
forth  above.  The  transfer  of  wealth  by  donation  or  otherwise  has 
nothing  to  do  Avith  consumption.  We  shall  treat  of  it  when  we 
come  to  speak  of  distribution. 

However,  in  consequence  of  the  inevitable  intervention  of 
money  in  social  relations,  each  of  our  methods  takes  on  a  special 
aspect  and  receives  a  particular  name. 

The  act  of  employing  wealth  for  the  satisfaction  of  our  wants  is 
called  expenditure,  and  every  act  of  consumption  is  practically 
effected  by  expenditure. 

There  are  some  exceptions  to  this ;  e.g.  the  case  of  the  peasant 
who  himself  consumes  the  produce  of  his  own  plot  of  ground. 
Still,  if  he  keeps  his  accounts  in  the  ordinary  manner,  he  will  not 
fail  to  place  under  the  head  of  his  expenses  (at  any  rate  by  a 
convenient  fiction)  the  products  which  he  consumes  as  they  are 
yielded  him  by  the  earth. 

The  act  of  employing  wealth  for  the  production  of  further 
wealth  is  called  investing  ;  to  invest  money  is  to  employ  it  in  pro- 
ductive undertakings. 

Thirdly,  the  negative  act  of  abstaining  from  makhig  an  imme- 
diate cmi)loyment  of  wealth,  i.e.  by  laying  it  by,  is  called  saving, 
or  rather  hoarding,  for,  as  we  shall  see,  the  term  "  saving  "  is  also 
used  to  signify  investing,  and  therefore  leads  to  ambiguity. 


CHAPTER   I. 
EXPENDITURE. 

I.    What  should  be  our  Conception  of  Expenditure  ? 

In  popular  speech  "  to  spend  "  means  to  take  money  out  of 
one's  pocket  and  pay  it  away.  Still,  we  should  not  call  spending 
the  purchase  of  stocks  and  shares,  of  estates,  and  of  houses ;  such 
would  rather  be  termed  investments.  Nor  should  we  put  under 
the  heading  of  expenditure  the  purchases  of  raw  material  made  by 
a  manufacturer,  the  seed  and  the  manure  bought  by  the  agricultu* 
rist,  the  stock  of  goods  laid  in  by  the  tradesman  or  warehouseman, 
or  ev'^en  the  wages  that  such  employers  pay  out  to  their  workmen. 
We  should  say  that  they  were  advances. 

The  term  "spending,"  then,  is  applied  only  to  a  certain  class  of 
purchases,  to  the  purchase  of  objects  or  of  services  which  are 
exclusively  intended  for  otir  own  personal  consumption.  Food, 
clothing,  house-rent,  furniture,  servants,  travel,  all  that  is  devoted 
to  the  immediate  satisfaction  of  our  wants,  —  that  is  the  meaning 
of  the  word  "  spending  "  or  "  expenditure." 

Of  all  the  modes  of  employing  wealth,  this  is  undoubtedly  the 
most  popular  and  the  most  favored  by  public  opinion. 

We  can  easily  observe  the  severity  with  which  popular  sentiment 
has  always  judged  those  who  save,  and  the  bountiful  indulgence  it 
has  ever  kept  in  stock  for  those  who  spend.  The  Roman  Church 
put  avarice  in  the  list  of  the  Seven  Deadly  Sins,  but  it  did  not 
reserve  a  place  for  extravagance.  There  is  not  a  novelist,  there  is 
not  a  playwright,  who  has  not  mercilessly  ridiculed  the  miser,  and 
many  of  them  have  expressed  their  sympathy  for  the  prodigal. 

In  country  places,  in  every  village  the  man  who  saves  is  disliked 
by  his  neighbors,  and  on  the  slightest  pretext  would  be  treated  as 

361 


362  PRINCIPLES    OF    POLITICAL    ECONOMY. 

a  public  enemy.  The  man  who  spends  enjoys  all  the  pleasures  of 
popularity.  But  why  is  this  ?  The  first  man  you  meet  will  enlighten 
you ;  he  will  say  that  no  doubt  the  man  who  saves  looks  after  his 
own  affairs  well  enough,  but  that  he  does  not  benefit  the  business 
of  his  neighbors.  By  laying  by  his  income,  by  keeping  his  fortune 
for  himself,  either  in  the  shape  of  money,  as  was  practised  by  the 
miser  of  the  Good  Old  Times,  or  as  sound,  profitable  stocks  and 
shares,  as  is  the  custom  of  the  thrifty  man  of  to-day,  the  man  who 
saves  acts  as  an  egotist ;  others  do  not  share  his  fortune  ;  no  one 
makes  a  farthing  by  him. 

On  the  other  hand,  the  man  who  spends  snakes  trade  brisk. 
The  money  that  he  spends  or  even  wastes  iS  a  shower  of  manna  to 
tradesmen,  workmen,  and  producers  of  every  kind.  "  If  the  rich 
do  not  spend  much,  the  poor  die  of  hunger."  That  was  said  by 
rif)  less  a  person  than  Montesquieu.  Even  if  the  spendthrift  comes 
to  ruin,  though  every  one  thinks  that  it  is  sad  for  him,  there  is  the 
consoling  reflection  that  there  is  nothing  lost,  and  that  others  will 
necessarily  gain  by  his  downfall. 

Nevertheless,  since  we  have  stated  that  in  the  long  run  all  ex- 
penditure takes  the  shape  of  consumption,  we  must  therefore  con- 
clude that  all  spending  implies  the  destruction  of  a  certain  quantity 
of  wealth.  The  reason  why  this  feature  of  expenditure  is  not  suf- 
ficiently regarded,  lies  in  the  fact  that  here,  as  in  other  matters, 
people  think  only  of  money.  Now  it  is  obvious  that  money  that 
is  spent  is  not  destroyed  ;  it  is  merely  transferred  from  one  person 
to  another ;  that  is  what  we  can  see,  to  speak  ii  la  Bastiat.  How- 
ever, some  wealth  has  been  actually  destroyed,  i.e.  that  which  the 
spender, procured  by  means  of  his  money  :  this  is  the  fact  that  we 
do  not  see. 

Take  the  case  of  a  great  ball  which  has  cost  a  thousand  pounds. 
No  doubt  these  thousand  pounds  will  reappear  again.  They  are 
not  lost.  They  have  certainly  passed  out  of  the  hands  of  the  giver 
of  the  ball,  and  have  gone  to  his  ball  contractor  and  tradesmen. 
But  what  will  never  be  found  again  and  is  really  destroyed  is  the 
wealth  supplied  to  him  l)y  his  tradespeople.     These  have  alto- 


CONSUMPTION.  363 

gether  ceased  to  exist,  whether  at  his  house  or  in  their  stores. 
The  cakes  and  sweets  are  eaten,  the  candles  are  burnt  out,  the 
flowers  are  faded,  the  dresses  have  lost  their  freshness,  and  so 
forth ;  in  a  word,  there  are  a  thousand  pounds'  worth  of  wealth  to 
strike  off  from  the  sum  total  of  wealth  possessed  by  society. 

Still,  we  must  make  allowance  for  certain  extenuating  circum- 
stances with  regard  to  expenditure. 

The  articles  that  we  buy  are  not  always  annihilated  by  the 
circumstance  that  we  use  them.  Clothes  last  several  months, 
furniture  some  years,  houses  some  generations  ;  and  it  is  the  priv- 
ilege of  works  of  art,  such  as  statues,  and  other  works  in  bronze 
and  in  marble,  and  pictures,  to  afford  us  the  same  enjoyment 
during  the  course  of  centuries,  and  indeed  almost  for  an  indefi- 
nite period.  In  such  cases  expenditure  evidently  loses  its  de- 
structive character,  for  not  only  does  the  money  spent  remain 
unconsumed,  but  the  same  is  the  lot  of  the  commodity  acquired 
in  exchange  for  it.  In  accordance  with  this,  when  any  one  buys 
a  valuable  piece  of  furniture,  or  fine  plate,  or  good  pictures, 
people  are  wont  to  say  that  he  has  made  a  good  investment. 
Still,  in  any  case  such  an  expression  is  inaccurate,  for,  though 
this  expenditure  is  not  destructive,  yet  it  cannot  be  called  pro- 
ductive, and  in  that  respect  it  must  always  differ  from  an  invest- 
ment in  the  correct  acceptation  of  that  term.  Nevertheless, 
when  a  collector  buys  some  old  chipped  pottery  at  the  auction 
rooms,  and  pays  ^100  for  it,  such  expenditure,  though  perhaps 
a  foolish  act  on  the  part  of  the  spender,  does  not  constitute  any 
real  destruction  of  wealth. 

Again,  in  many  cases,  a  certain  quantity  of  wealth  is  consumed, 
but,  nevertheless,  the  value  of  the  wealth  destroyed  is  far  from 
being  equal  to  the  sum  total  of  the  expenditure.  This  occurs 
whenever,  for  any  reason,  an  article  is  bought  at  a  price  which  is 
much  above  its  real  value,  value  in  this  instance  standing  for  the 
object's  cost  of  production.  For  example,  when  a  lady  pays 
;£^o  for  an  ordinary  dress,  merely  because  it  is  made  in  the 
workroom   of  a   fashionable  dressmaker,  the  amount  of  wealth 


364  PRINCIPLES    OF    POLITICAL    ECONOMY. 

actually  consumed  is  obviously  worth  much  less  than  the  ^50 
paid.  We  must  measure  it  by  the  value  of  the  material  used 
and  by  the  amount  of  work  done  by  the  seamstresses  and  makers- 
up ;  in  other  words,  it  is  probably  less  than  a  quarter  of  the  price 
paid.  No  doubt  the  ;!^5o  are  altogether  lost  by  the  lady  who  has 
spent  them,  but  they  are  not  lost  as  regards  society  taken  as  a 
whole.  They  are  only  transferred  to  the  account  of  the  dressmaker. 
It  therefore  follows  (as  John  Stuart  Mill  remarks  with  much 
subtlety)  that  the  spendthrift  does  not  really  squander  so  much 
wealth  as  we  might  be  disposed  to  believe,  and,  even  if  he  has  not 
a  farthing  left,  we  are  not  to  think  that  he  has  swallowed  up  all  his 
fortune.  A  goodly  proportion  of  it  still  subsists  in  the  hands  of 
all  those  who  have  profited  by  his  folly ;  e.g.  his  tradesmen,  his 
stewards  and  bailiffs,  his  servants,  perhaps  even  his  friends,  who 
have  won  money  from  him  at  the  card-table.  All  this  is  so  much 
saved  from  the  shipwreck. 

II.     How  it  happens  that  Expenditure  regulates  but  does 
not  feed  Production. 

A  glance  at  the  economic  organism  is  enough  to  show  the  inti- 
mate relations  between  production  and  consumption,  and  to  indi- 
cate how  far  the  former  regulates  its  pace  according  to  the  speed 
of  the  latter.  Whenever  consumption  increases,  production  dis- 
plays a  redoubled  activity ;  a  stoppage  or  slackening  of  consump- 
tion causes  dulness  of  business.  It  is  only  a  step  further  to 
conclude  that  consumption  is  the  real  cause  of  production,  and 
that  the  more  there  is  consumed,  the  more  there  is  produced. 
The  unthinking  public  readily  takes  this  step  forward,  and  asserts 
that  in  order  to  produce  we  must  consume  much  ;  in  other  words, 
spend  much. 

Yet  a  deep  abyss  separates  the  two  ideas.  The  enunciation  of 
the  fact  is  correct  enough  ;  the  inference  drawn  is  absurd. 

It  is  obvious  that  the  production  of  commodities  is  determined 
by  the  desire  we  have  for  them,  though  this  is  not  identical  with 


CONSUMPTION.  365 

consumption,  which  is  only  the  satisfaction  of  that  desire.  If  we 
have  a  keen  desire  for  anything,  we  shall  endeavor  to  produce  it 
in  as  large  quantities  as  possible  ;  if  we  no  longer  care  about  it,  we 
shall  turn  our  efforts  elsewhere. 

But  it  is  also  obvious  that  to  desire  a  thing  does  not  create  it. 
We  must  also  have  the  means  of  producing  it.  Matters  would  be 
otherwise  did  our  will  possess  creative  power.  Unfortunately  it 
does  not.  As  we  are  aware,  the  creation  of  wealth  requires  a 
certain  amount  of  labor,  of  raw  material,  of  land,  and  of  capital. 
Now  all  these  requirements  cannot  possibly  be  increased  either  by 
our  expenditure  or  by  our  consumption;  on  the  contrary,  they 
can  only  be  diminished  by  them. 

Were  any  one  to  say  that  the  more  fruit  we  plucked  the  more 
our  orchard  would  yield,  the  more  fish  were  netted  the  more  the 
sea  would  supply,  the  more  wood  we  burnt  the  higher  and  thicker 
would  be  the  forest  trees,  we  should  instantly  perceive  the  ab- 
surdity of  such  a  train  of  argument.  Why  should  we  laugh  ?  Be- 
cause we  clearly  see  that  the  productive  power  of  these  natural 
agents  does  not  depend  on  our  consumption.  Still,  we  do  not 
consider  it  ridiculous  to  say  that  the  more  ribands  we  consume, 
the  more  ribands  will  be  produced.  But  why  not?  Because 
if  we  desire  this  product  more  than  another,  manufacture  will 
speedily  find  the  means  of  satisfying  us,  by  diverting  to  this  branch 
of  industry  the  labor  and  capital  previously  employed  on  other 
productive  undertakings ;  and  thus  the  production  of  ribands  will 
grow  pari  passu  with  the  consumption  of  them.  Yet,  however 
keenly  we  might  have  desired  them,  however  large  a  quantity  we 
might  have  been  disposed  to  consume,  these  ribands  would  never 
have  been  produced  save  for  the  prior  existence  of  the  necessary 
factors  in  all  production ;  namely,  a  certain  number  of  workers,  a 
certain  amount  of  capital.  The  number  of  those  who  labor,  it 
does  not  lie  with  us  to  increase ;  the  amount  of  capital  we  cer- 
tainly can  increase,  but  in  what  way?  By  spending?  Surely  not. 
On  the  contrary,  by  saving.  Production,  then,  is  fed  not  by 
spending,  but  by  saving. 


366  PRINCIPLES    OF    POLITICAL    ECONOMY. 

The  following  figure  will  make  the  matter  clearer :  The  amount 
of  wealth  existing  in  a  country  at  any  particular  moment  should 
be  represented,  not  as  a  mass  of  water  enclosed  in  a  cistern,  but 
as  a  running  stream  which  is  ever  renewed,  being  fed  by  the  two 
springs,  land  and  labor.  Now  many  people  think  that  the  more 
water  is  drawn  from  thfe  brook,  the  more  water  there  will  be.  That 
is  impossible,  for  each  of  these  springs  has  only  a  limited  supply, 
and  if  many  persons  draw  water  therefrom  as  often  and  as  freely  as 
they  like,  the  rest  of  the  community  will  be  obliged  to  go  on  short 
commons. 

III.    The  Real  Aims  of  Expenditure. 

It  would  be  ridiculous,  from  the  fact  that  all  spending  generally 
leads  to  a  destruction  of  wealth,  for  us  to  infer  that  each  one  of  us 
ought  to  try  to  consume  as  little  as  possible. 

For  all  wealth  is  destined  to  be  consumed  ;  in  fact,  is  made  only 
for  that  purpose.  As  the  French  word  implies,  consojuviation 
means  the  accomplishment  or  consummation  of  the  whole  eco- 
nomic process  ;  it  is  the  final  end  aimed  at  by  production,  circula- 
tion, and  distribution.  The  only  raison  iVcire  of  saving  is  to  insure 
fuller  satisfaction  for  future  consumption.  When,  in  our  recent 
example,  Robinson  Crusoe  sowed  in  the  ground  the  handful  of 
grains  saved  from  the  wreck,  instead  of  eating  them  outright,  he 
did  this  so  that  he  might  be  able  to  eat  ten  times  as  many  the 
next  year.  Always  to  save,  in  order  never  to  consume,  would  be 
the  most  futile  occupation  that  mankind  could  possibly  turn  to. 

On  the  other  hand,  we  must  not  lose  sight  of  a  point  we  have 
had  frequently  to  dwell  on.  The  quantity  of  wealth  that  exists  in 
the  world  is  still  extremely  insufficient,  and  the  human  race  is 
scarcely  any  richer  than  Robinson  Crusoe  was  on  his  island. 
Under  these  circumstances  it  may  be  to  the  interests  of  society, 
as  well  as  part  of  the  duty  of  every  individual,  to  husband  these 
precious  resources,  by  reducing  as  for  as  ])ossil)le  the  portion  ex- 
pended in  unproductive  consumption,  and  by  devoting  the  greatest 
possible  part  to  the  production  of  new  wealth. 


CONSUMPTION.  367 

We  should  therefore  divide  into  two  portions  each  man's  private 
income,  and  also  the  collective  income  of  an  entire  country.  One 
part  should  be  for  spending,  the  other  for  saving.  In  all  civilized 
societies  this  division  is  spontaneously  effected,  though  the  pro- 
portions are  very  unequal ;  for  it  is  rare,  even  in  the  most  advanced 
countries,  for  the  amount  devoted  to  saving  to  reach  a  tenth  of 
the  whole  revenue.  The  annual  savings  of  France  and  of  England 
approximately  attain  this  proportion,  for  they  may  be  reckoned  as 
between  ^80,000,000  and  ^^i  20,000,000  sterling,  out  of  a  total 
of  _j^ 1, 000,000,000  to  ^1,200,000,000.  The  reason  is  that  there 
is  a  great  inequality  in  potency  of  the  respective  motives  that 
incite  to  spending  and  stimulate  to  saving. 

It  would  be  no  less  important  for  us  to  be  able  to  determine 
scientifically  the  legitimate  aims  of  spending.  Although  the  prob- 
lem IS  not  susceptible  either  of  a  rigorous  or  even  of  an  uni- 
versal solution,  still  it  may  be  wise  for  us  to  state  certain  leading 
principles  upon  which  economists  have  come  to  agree. 

Firstly.  Every  act  of  spending  that  has  as  its  result  some 
physical  or  intellectual  development  of  mankind,  should  be  re- 
garded not  only  as  being  good  in  itself,  but  also  as  being  prefera- 
ble to  saving.  For  how  could  man  better  use  wealth  than  by 
employing  it  to  fortify  his  health  and  develop  his  mental  powers? 
From  this  point  of  view  wholesome  food,  good  clothing,  a  healthy 
house,  comfortable  furniture,  and  instructive  books,  are  expenses 
which  should  not  only  extort  our  permission,  but  should  also  re- 
ceive our  recommendation.  Indeed,  such  may  be  said  to  be  the 
best  of  all  investments,  although,  no  doubt,  when  men  seek  to 
obtain  as  good  food  and  housing  as  possible,  their  general  aim  is 
merely  to  procure  some  personal  gratification ;  nevertheless,  this 
consumption  tends  indirectly  to  increase  their  capacity  for  work 
and  their  productive  power,  and  thus  produces  in  the  long  run  the 
same  result  as  saving. 

Above  all,  such  should  be  the  direction  taken  by  public  ex- 
penses ;  for  we  must  never  lose  sight  of  the  fact  that  they,  in  the 
same  way  as  private  expenses,  constitute  a  destruction  of  wealth. 


368  PRINCIPLES    OF    POLITICAL    ECONOMY. 

But  if  this  wealth  has  been  consumed  with  the  view  of  developing 
the  education  of  our  citizens,  as  by  schools  or  libraries,  of  strength- 
ening their  bodily  health,  as  by  public  gardens,  hospitals,  public 
baths,  or  gymnasia,  or  of  forming  their  taste,  as  by  museums, 
concerts,  or  even  theatres,  such  expenditure  seems  fit  to  be  be- 
yond criticism.  But  even  then  we  must  be  careful  to  provide  no 
more  luxury  than  is  absolutely  necessary  for  the  attainment  of  the 
end  in  view. 

Secojidly.  Conversely,  all  expenditure  that  tends  to  the  opposite 
result,  i.e.  that  is  of  a  character  to  injuriously  affect  the  physical, 
intellectual,  or  moral  development  of  man,  deserves  the  condem- 
nation of  the  economist  as  well  as  of  the  moralist,  for  sooner  or 
later  it  weakens  productive  power.  The  most  striking  example 
of  expenditure  of  this  nature  is  the  consumption  of  alcohol  in  our 
own  European  lands  or  of  opium  in  the  East.  The  French,  who 
drink,  on  the  whole,  less  alcoholic  liquors  than  most  other  nations, 
consume  yearly  about  33,000,000  gallons  of  brandy.  These  are 
sold  retail  in  about  10,000,000,000  "nips,"  at  a  penny  each,  and 
amount  to  an  annual  expenditure  of  about  ^40,000,000  sterling. 
Even  this  enormous  expenditure  is  relatively  a  trifle  when  com- 
pared with  the  incalculable  losses  that  it  brings  in  its  train,  in  the 
shape  of  incapacity  for  work,  disease,  madness,  crime,  and  suicide. 
Far  more  alcohol  is  consumed  in  Russia,  in  Germany,  in  Belgium, 
in  Holland,  and  in  Switzerland.  Still,  it  is  consoling  to  find  that 
this  consumption  has  been  perceptibly  reduced  in  Norway,  Eng- 
land, and  the  United  States,  by  means  of  the  action  of  temperance 
societies.  In  fact,  the  "  drink  "  question  is  one  of  the  questions 
of  the  day. 

We  must  also  characterize  as  harmful  every  act  of  spending 
which  does  not  answer  to  any  want  of  man,  and  which,  therefore, 
is  a  purely  foolish  destruction  of  wealth.  In  this  category  must 
be  placed  such  acts  as  that  related  by  J.  B.  Say ;  viz.  the  case  of 
the  man  breaking  wineglasses  at  dessert,  "  in  order  that  every  one 
may  be  able  to  live."  The  livelihood  of  society  was  not  one  jot 
directly  impaired  or  improved  by  such  an  action.     The  only  con- 


CONSUMPTION.  369 

sequence  was  that  an  hour  had  to  be  wasted  in  making  another 
wineglass,  to  compensate  for  the  wanton  folly  of  this  crack-brain. 
Cleopatra's  wine  did  not  gain  a  richer  "  bouquet  "  from  the  pearl 
she  dissolved  in  her  glass ;  ^sop's  dish  of  the  tongues  of  birds, 
which  had  all  been  previously  taught  to  speak  or  to  sing,  certainly 
tasted  no  better  than  a  dish  of  the  tongues  of  birds  which  had  not 
acquired  such  pleasure-giving  accomplishments.  The  cardinal 
idea  at  the  bottom  of  such  acts  is  spending  for  spending's  sake  — 
spending  which  is  treated  as  an  end  instead  of  as  a  means,  com- 
bined, perhaps,  with  that  inane  satisfaction  which  some  people 
obtain  from  the  pleasure  of  mere  destruction.  But  there  is  no 
need  of  recondite  examples  of  this.  Every  man  who  drinks  a 
glass  of  beer  when  he  is  not  thirsty,  or  smokes  a  cigar  with  no 
pleasure  to  himself;  and  only  with  the  idea  of  "  doing  as  others 
do,"  destroys  wealth  on  a  small  scale,  irt  exactly  the  same  manner 
as  was  done  by  the  Queen  of  Egypt,  or  by  ^sop  the  actor.  Nay, 
my  phrase  "  on  a  small  scale  "  is  inaccurate ;  for  if  we  could 
reckon  up  all  the  wasteful  acts  of  consumption  in  one  single  coun- 
try, acts  which  have  not  even  the  excuse  of  affording  the  slightest 
enjoyment,  we  should  find  that  they  amount  to  a  far  higher  sum 
than  the  value  of  Cleopatra's  pearl. 

IV.     Luxury. 

Even  supposing  the  observance  of  the  principles  that  we  have 
enunciated,  our  problem  would  still  be  far  from  being  solved ;  for 
what  are  we  to  say  of  those  multifarious  expenditures  which,  with- 
■  out  directly  contributing  to  our  physical  or  intellectual  develop- 
ment, tend,  nevertheless,  to  make  life  more  agreeable,  by  instilling 
into  it  greater  comfort  and  more  refined  enjoyments  ? 

This  will  be  seen  to  propound  the  celebrated  problem  of  luxury, 
which  has  been  an  eternal  subject  of  controversy  among  econo- 
mists as  well  as  among  moralists. 

Perhaps  it  may  be  thought  that  a  necessary  prelude  to  this 
subject  should  be  a  definition  of  luxury.     Such  an  opinion  is 


l"^  PRINCIPLES   OF   POLITICAL   ECONOMY, 

well-grounded,  but  unfortunately  the  idea  of  luxury  is  not  sus- 
ceptible of  any  i)recise  definition.  The  word  "  luxury  "  expresses 
the  idea  of  a  double  disproportion  —  a  disproportion  on  the  one 
hand  between  the  private  fortune  of  a  person  and  the  expense  he 
incurs,  and  on  the  other  hand  between  the  expenditure  made  and 
the  satisfaction  obtained.  Luxury,  in  fact,  is  to  devote  a  sum  of 
money,  or,  more  scientifically  speaking,  a  relatively  large  amount 
of  labor,  to  the  satisfaction  of  a  relatively  supe?-fluous  want. 

On  this,  as  on  almost  every  other  great  question  in  political 
economy,  we  find  the  field  disputed  by  two  opposing  schools. 

According  to  one  school,  all  expenses  in  the  way  of  luxury  fall 
under  the  head  of  such  expenditure  as  should  be  condemned  in 
the  name  of  economic  science,  even  if  not  prohibited  by  positive 
laws.  It  is  well  known  that,  both  in  ancient  times,  as  well  as  in 
the  Middle  Ages,  expenses  of  luxury  have  frequently  been  pro- 
hibited by  sumptuary  laws  (an  account  of  which  may  be  found 
in  the  second  volume  of  Roscher's  Political  Economy^.  The 
school  under  review  lays  down  that,  as  the  quantity  of  existing 
wealth  is  insufficient  even  to  satisfy  the  primal  wants  of  the  large 
majority  of  our  fellow-creatures,  we  should  endeavor  to  increase 
this  available  store  as  much  as  ever  we  can,  and  should  refrain 
from  drawing  on  it  in  a  reckless  manner  in  order  to  satisfy  super- 
lluous  wants.  Further,  the  productive  powers  that  we  can  use 
are,  as  a  matter  of  fact,  limited ;  and  therefore,  if  the  wealthy 
classes  divert  a  portion  of  these  forces  towards  the  production  of 
articles  of  luxury,  there  will  be  so  much  the  less  available  for  the 
production  of  those  staple  articles  that  the  masses  require  for 
their  consumption. 

To  this  the  opposing  school  replies  that  luxury  is  an  indispensa- 
ble stimulus  to  progress  ;  that,  really,  all  economic  progress  is  first 
manifested  in  the  shape  of  a  need  of  luxury,  and  that  luxury, 
therefore,  is  a  necessary  phase  of  its  development.  Every  want 
or  need  is,  on  its  first  appearance  in  the'  world,  necessarily  re- 
garded as  superfluous ;  firstly,  because  no  one  has  hitherto  felt  it, 
and  secondly,  because  its  satisfaction  probably  requires  a  consid- 


CONSUMPTION.  371 

erable  amount  of  labor,  on  account  of  man's  lack  of  experience  of 
the  corresponding  industry,  and  tlie  inevitable  gropings  in  the 
dark  that  attend  all  beginnings.  Among  the  articles  that  nowa- 
days are  regarded  as  indispensable  we  must  certainly  place  body 
linen.  "  To  be  reduced  to  one's  last  shirt  "  is  a  proverbial  phrase, 
expressive  of  the  last  degree  of  destitution.  Vet  history  teaches 
what,  indeed,  we  might  have  easily  guessed,  —  that  at  certain 
epochs  a  shirt  was  considered  as  an  object  of  great  luxury,  and 
sometimes  served  even  as  a  royal  present.  It  is  the  same  with 
every  other  article  that  we  might  choose  to  notice.  If,  then,  the 
principles  of  the  first  school  had  been  apphed  with  sufficient  vigor 
to  repress  every  desire  for  luxury,  all  the  needs  that  constitute  the 
civilized  man  would  have  been  nipped  in  the  bud,  and  we  should 
still  be  in  the  condition  of  our  ancestors  of  the  Stone  Age. 

The  tenets  of  the  first  school  are  set  forth  by  M.  de  Laveleye, 
in  his  work  on  Le  Luxe,  and  those  of  the  second  school  are  con- 
tained in  M.  Leroy-Beaulieu's  Precis  d'' Econortiie  politique.  The 
opinions  of  those  who  hold  an  intermediate  position  may  be  found 
in  M-  Baudrillart's  four  volumes  on  the  Histoire  du  Luxe. 

Still,  in  xiwx  opinion  there  is  no  necessary  contradiction  between 
these  two  theses.  It  is  possible,  at  one  and  the  same  time,  to 
condemn  all  expenses  in  the  way  of  luxury  which  entail  an  exces- 
sive squandering  of  productive  power,  and  also  to  accept,  or  even 
favor,  every  new  want  which  answers  to  a  new  invention,  or  tends 
to  enlarge  the  range  of  the  human  senses.  To  fit  up  a  telephone 
in  one's  house  is  certainly  an  act  of  luxury  ;  nevertheless,  the  use 
of  this  invention  is  especially  capable  of  making  life  easier,  through 
economizing  time,  and  diminishing  the  difficulties  and  the  griefs 
occasioned  by  separations  of  relatives  and  friends.  Further,  the 
only  means  of  putting  this  instrument  within  the  reach  of  all  is  to 
first  extend  its  use  among  the  wealthy  classes.  The  conclusion 
is  that  those  who  can  afford  to  incur  this  expense  act  wisely  in  so 
doing.  But,  on  the  other  hand,  when  a  lady  of  fashion  wears  on 
her  ball-dress  some  yards  of  lace,  which  must  have  cost  the  lace- 
maker  several  years  of  labor,  or  when  an  Englishman  of  title,  in 


3/2  PRINCIPLES    OF    POLITICAL    ECONOMY. 

order  to  give  himself  the  proud  pleasure  of  affording  grouse-shoot- 
ing to  his  sportsman  guests,  turns  into  game  preserves  acres  and 
acres  which  might  have  supplied  several  hundred  human  beings 
with  food,  —  in  such  cases  we  have  the  right  to  declare  that  wealth 
has  been  culpably  misused.  The  interests  of  progress  have  noth- 
ing to  do  with  it. 

But  an  objector  may  ask,  "  Do  you  think  that  if  English  aristo- 
crats were  to  dismiss  their  armies  of  servants,  abandon  their  vast 
pleasure-parks  and  shooting-grounds,  close  their  stables,  give  up 
their  packs,  and  drink  less  claret  and  port,  the  condition  of  the 
English  working  poor  would  be  improved  in  any  form  or  shape?" 
Certainly  we  do.  The  army  of  workmen  would  be  reinforced  by 
those  dismissed  from  a  service  of  idleness ;  cultivable  land  would 
be  increased  in  extent  by  the  tracts  that  would  thus  be  restored 
to  it ;  kine  or  swine  would  be  fattened  with  the  food  hitherto  given 
to  horses  or  dogs ;  and,  above  all,  the  capital  of  the  country  would 
be  augmented  by  all  that  the  "upper  ten  "  would  henceforth  cease 
to  consume.  Now  if  all  the  elements  of  production  were  increased 
in  this  wise,  the  quantity  of  wealth,  too,  would  necessarily  be 
augmented ;  were  wealth  more  abundant,  it  would  be  more  easily 
obtained,  and  the  condition  of  the  lower  classes  would  be  improved 
in  Hke  proportion. 

A  word  or  two  may  be  necessary  as  to  art.  Should  art  be  held 
to  be  a  luxury?  Undoubtedly  it  should,  from  the  economist's 
point  of  view ;  but  of  all  luxuries  it  is  the  one  that  he  can  regard 
the  most  favorably,  even  according  to  a  strictly  economic  cri- 
terion. The  point  to  consider  is  not  whether  ;^24,ooo  has  been 
paid  for  a  picture  such  as  Millet's  "  L'Angelus,"  but  whether  this 
picture  has  required  an  amount  of  labor  or  of  capital  which  is 
disproportionate  to  the  pleasure  it  can  give  to  the  purchaser  and 
others.  Now  it  is  evident  that  the  picture  has  absorbed  a  rela- 
tively minute  amount  of  wealtli  and  of  labor.  For  what  has  been 
consumed  in  its  painting?  A  yard  of  canvas,  a  few  tubes  of  colors, 
and  a  (cw  weeks  or  months  of  one  man's  labors  (the  labor  of  two 
or  three,  perhaps,  if  we  include  tlie  models) .    The  result  is  a  work 


CONSUMPTION.  373 

which,  on  account  of  its  unHmited  powers  of  durability,  will  be  able 
to  give  the  most  exquisite  delight  to  all  succeeding  generations  for 
a  thousand  years  hence,  or  even  longer.  Here  surely  the  effort 
made  is  not  disproportionate  to  the  result  achieved. 

However,  there  are  certain  forms  of  art  which  require  a  great 
consumption  of  wealth ;  for  example,  the  architecture  of  the 
Pyramids  of  Egypt,  a  Gothic  cathedral,  or  such  a  theatre  as  the 
Paris  Opera  House.  These  are  more  justifiable  forms  of  expendi- 
ture, for  they  are  instances  of  public  luxury. 

It  is  also  true  that  every  high  art  always  involves  a  greater  waste 
of  productive  power  than  any  other  form  of  production,  since  for 
every  artist  of  genius  we  must  always  reckon,  say,  a  hundred  others, 
who  have  missed  their  mark  and  are  "failures."  Their  labor, 
therefore,  is  wasted  to  no  purpose. 

V.     The  Expenditure  of  Foreigners. 

Although  what  a  Frenchman  spends  in  France  constitutes  a 
destruction  of  wealth  for  his  country,  the  expenses  incurred  by 
foreigners  are  not  to  be  looked  at  in  the  same  light.  No  doubt  a 
foreigner,  also,  destroys  by  consumption  a  certain  quantity  of 
material  wealth,  but  he  brings  in  exchange  an  equivalent  amount 
of  money,  and  the  country  he  visits  loses  nothing  thereby.  This, 
of  course,  proceeds  on  the  supposition  that  he  draws  these  funds 
from  his  own  country ;  for,  if  he  spends  this  money  out  of  the 
interest  on  capital  he  has  invested  in  France,  or  out  of  rent  from 
land  which  he  holds  in  France,  his  expenditure,  as  far  as  its 
effects  are  concerned,  will  clearly  be  indistinguishable  from  the 
expenditure  of  a  native  Frenchman. 

^s  it  enough  to  say  that  the  country  loses  nothing  ?  Ought  we 
not  rather  to  affirm  that  it  gains?  Such,  in  truth,  is  the  popular 
opinion.  The  expenditure  made  in  a  country  by  foreign  residents 
or  tourists  is  usually  regarded  as  a  source  of  wealth  for  the  country. 
In  Switzerland,  Italy,  Nice,  and  Paris  the  foreigner  is  the  pro- 
verbial goose  that  lays  the  golden  eggs.     Economists,  for  their 


374  PRINCIPLES    OF    POLITICAL    ECONOMY. 

part,  have  no  scruples  in  treating  such  opinions  as  mere  prejudices, 
and  in  declaring  that  this  expenditure  is  sterile  and  cannot  in  the 
least  increase  the  wealth  of  the  country.    Which  are  we  to  believe  ? 

The  economists  urge  that  foreigners,  in  exchange  for  the  money 
which  they  bring  into  a  country,  consume  an  exactly  equal  amount 
of  wealth,  and  that  therefore  the  country  considered  as  a  whole 
neither  loses  nor  gains,  though  particular  districts  or  industries 
may  incontestably  obtain  some  benefit.  It  is  admitted  as  a  matter 
of  course  that  the  presence  of  foreigners  in  any  locality  will  at- 
tract thither  not  only  people,  but  also  capital,  and  that  excellent 
business  will  be  done  by  hotel-proprietors,  keepers  of  livery 
stables,  photographers,  and  so  forth ;  but  the  economists  proceed 
to  say  that  as  these  workers  and  this  capital  are  diverted  from 
other  parts  of  the  country,  other  industries  must  surely  lose  just 
as  much  as  these  will  gain. 

But  is  it  quite  correct  to  say  that  foreigners  in  exchange  for 
their  money  always  consume  an  equivalent  amount  of  wealth  ?  It 
is  not  true  in  all  cases. 

In  the  first  place,  it  is  not  true  whenever  a  foreigner  is  cheated ; 
i.e.  whenever  he  is  obliged  to  pay  far  more  money  than  they  are 
worth  for  the  articles  that  he  consumes ;  in  such  cases  he  clearly 
pays  a  kind  of  tribute  to  the  country  that  he  is  visiting ;  in  other 
words,  a  poll-tax  is  levied  on  him.  Making  all  due  reserves  as  to 
the  morality  of  such  proceedings,  still  we  must  observe  that  such 
exactions  have  become  hallowed  by  usage,  and  there  are  few 
towns  frequented  by  foreigners  in  which  there  are  not  two  sets  of 
prices,  one  for  foreigners,  the  other  for  the  natives. 

Again,  the  dictum  of  the  economists  is  not  true  whenever  the 
wealth  in  question  is  from  its  nature  neither  consumable  nor 
destructible.  When  a  foreigner  purchases  the  right  of  enjoying 
clear  skies,  of  breathing  pure  air,  of  gazing  upon  picturesque 
scenes  (and  this  he  does  whenever  he  rents  a  villa  or  hires  a 
carriage  or  engages  a  guide),  he  does  not  diminish  the  wealth 
of  the  country  by  the  slightest  fraction.  On  the  contrary,  he 
literally  pays  rent  to  the  country,  precisely  the  same  rent  as  accrues 


CONSUMPTION.  375 

to  any  landowner  who  holds  the  monopoly  of  some  natural  advan- 
tage. Why,  indeed,  should  not  glaciers  like  those  of  Switzerland, 
coasts  like  the  Riviera,  waterfalls  like  the  Norwegian,  museums 
and  old  ruins  like  those  in  Italy,  —  why  should  not  all  these  be 
sources  of  wealth  for  the  respective  countries  just  in  the  same 
manner  as  coal  mines  or  forests  are  ? 

It  may  be  rejoined  that  these  are  unproductive  goods.  With- 
out doubt  they  produce  nothing  for  mankind  in  general,  save  a 
particular  form  of  enjoyment,  but  they  clearly  return  an  income 
to  the  country  that  has  discovered  a  means  of  profiting  by  them 
by  allowing  foreigners  to  use  or  merely  view  them  on  payment  of 
a  certain  sum.  If  there  is  any  curious  object  on  my  estate  and 
I  put  barriers  round  it  and  impose  the  payment  of  a  shilhng  upon 
any  passer-by  who  is  inquisitive  or  interested  enough  to  wish  to 
view  it,  no  doubt  the  revenue  of  the  country  will  not  be  increased 
thereby,  but  my  own  income  will  be  powerfully  increased  at  the 
expense  of  the  pockets  of  the  tourists.  But,  if  I  am  obliged  to 
make  an  enclosure  of  the  spot  or  have  to  pay  a  person  to  look 
after  it,  then  there  will  obviously  be  expenses  to  deduct  from 
my  returns.  Similarly,  the  expenses  incurred  in  building  villas, 
and  the  services  rendered  by  guides,  coachmen,  and  ciceroni  in 
charge  of  tourists,  evidently  represent  an  amount  of  capital  and 
of  labor  which  have  to  be  deducted,  but  in  the  end  a  net  profit 
may  remain  over. 

Further,  we  hear  the  following  argument  urged  :  the  only  effect 
of  this  supposed  gain  is  to  augment  the  quantity  of  money  in 
circulation  in  the  country,  and  this  increase  of  money  confers 
no  real  advantage.  As  the  coins  become  more  abundant,  they  will 
lose  some  of  their  purchasing  power  and  prices  will  rise.  That 
is  all  the  gain  ! 

More  than  once  already  we  have  had  occasion  to  explain  our 
position  with  reference  to  this  theory  that  it  does  not  matter  to  a 
country  whether  it  has  much  or  little  money.  In  the  present 
instance  it  is  enough  to  observe,  that,  if  Englishmen  have  been 
willing  to  give  France  some  thousands  of  pounds,  merely  for  the 


3/6  PRINCIPLES    OF    POLITICAL    ECONOMY. 

pleasure  of  residing  at  Paris  or  at  Nice,  France  is  perfectly  free  to 
exchange  this  money  for  an  equal  value  of  English  goods ;  and 
such  goods  will  be  an  increase  of  wealth  for  which  France  has 
paid  nothing. 

This  afflux  of  money  must  be  regarded  as  particularly  advan- 
tageous when  a  country  has  experienced  a  scarcity  of  coin,  either 
through  an  excessive  circulation  of  paper  money,  or  when  the 
balance  of  trade  has  been  unfavorable.  The  continued  flocking 
of  foreign  tourists  into  Italy  is  certainly  one  of  the  circumstances 
that  have  aided  that  country  in  getting  rid  of  her  paper  money, 
and  of  returning  to  payment  in  specie. 

However,  it  is  further  to  be  observed  that,  as  we  cannot  set  up 
a  continuous  current  of  coin  from  one  country  to  another,  and  as 
the  equilibrium  between  exports  and  imports  always  tends  to  re- 
establish itself,  the  expenditure  of  foreigners  will,  if  the  situation 
be  much  prolonged,  be  paid,  not  by  remittances  of  specie,  but  by 
foreign  goods  imported  into  France. 

That  is  certainly  accurate ;  but  such  a  position  will  not  be 
actually  effected  till  the  country  has  become  sufficiently  provided 
with  money  in  the  shape  of  coin. 

VI.    The  Means  of  reducing  Expenditure. 

There  is  only  one  way  of  reducing  expenditure  without  reducing 
consumption  (for  the  latter  course  would  lead  us  to  trench  on  the 
province  of  saving) ;  this  mode  is  association. 

If  several  persons  join  together  for  the  purpose  of  having  only 
one  house,  one  hearth,  or  one  dinner-table,  in  that  way  they  will 
be  able  to  obtain  the  same  amount  of  satisfaction  with  far  less 
expense. 

Daily  instances  of  this  are  given  by  the  maintenance  of  religious 
votaries  at  convents,  of  soldiers  at  barracks,  of  boys  at  boarding- 
schools. 

But  what  is  the  reason  for  this?  It  springs  from  those  very 
causes  that  make  production  on  a  large  scale  so  much  cheaper 


CONSUMPTION.  377 

than  isolated  production.  We  are  already  familiar  with  these 
causes,  and  by  modifying  them  a  little  we  can  easily  transpose 
them  from  the  region  of  production  into  the  sphere  of  consump- 
tion. The  enormous  savings  that  can  result  from  consumption  in 
common,  especially  as  regards  attendance,  housing,  cooking,  have 
been  vividly  and  picturesquely  described  by  Fourier  in  his  Traite 
de  r Association  domestique  agricole,  and  by  his  follower,  Conside- 
rant,  in  his  Destinees  sociales. 

From  this  circumstance  communists  are  ready  to  conclude  that 
the  kind  of  life  heretofore  led  by  human  societies,  viz.  family  life 
in  isolated  groups,  involves  excessive  expenditure  and  a  real  waste 
of  wealth.  To  replace  this  family  life  by  life  in  common  would, 
in  their  opinion,  be  a  great  step  in  advance,  and  a  great  benefit  to 
mankind.  Fourier,  in  his  description  of  his  phalanstery,  has  set 
forth  this  idea  with  more  energy  and  vigor  than  have  been  dis- 
played by  any  of  its  other  exponents. 

Unfortunately,  though  life  in  common  possesses  the  incontestable 
advantage  of  bringing  about  much  saving,  on  the  other  hand  it 
has  the  mischievous  effect  of  doing  away  with  family  life,  of  de- 
stroying the  domestic  fireside  ;  in  a  word,  of  annihilating  that 
"  home  "  which  constitutes  one  of  the  first  needs  of  man,  and  is 
one  of  the  principal  charms  of  existence.  Human  nature  has 
always  revolted  against  life  in  a  mess-room,  or  even  at  a  table 
d'hote.  Fourier,  no  doubt,  may  think  otherwise ;  he  says  in  his 
Association  domestique  agricole,  N (A.  II,  page  25  :  '^ h.  pater  familias 
on  reading  this  sketch  will  say,  '  My  pleasure  is  to  dine  with  my 
wife  and  children  ;  and  whatever  happens,  I  will  keep  this  agree- 
able custom.'  He  is  altogether  wrong  in  his  opinion.  Just  at 
present,  his  habit  pleases  him,  because  he  has  no  better  one ;  but 
when  he  has  had  two  days'  experience  of  the  customs  of  Har- 
mony, he  will  send  to  the  fold  his  wife  and  children,  and  they  for 
their  part  will  like  nothing  better  than  emancipation  from  the 
melancholy  family  dinner."  We  must  not  forget,  when  we  read 
this  passage,  that  Fourier  was  an  old  bachelor. 

We  should  lose  sight  of  the  very  aim  of  wealth,  the  whole  scope 


378  PRINCIPLES    OF    POLITICAL    ECONOMY. 

of  which  is  to  afford  us  enjoyment,  if  we  were  thus  to  sacrifice, 
to  a  desire  of  Uving  a  little  more  economically,  all  the  conditions 
of  private  happiness  and  one  of  the  factors  of  human  existence 
that  most  powerfully  strengthens  morals.  Then,  in  fact,  we  should 
have  to  repeat  the  poet's  saying,  "  Propter  vitam,  vivendi  perdere 
caiisatn." 

But  without  binding  ourselves  to  actual  life  in  common,  —  i.e. 
the  obligation  of  sleeping  under  the  same  roof  and  dining  at  the 
same  table,  —  we  can  still  obtain  at  least  a  portion  of  the  advan- 
tages of  consumption  in  common.  This  result  has  been  achieved, 
both  by  the  institution  of  public  kitchens  {/ourneaux  econo- 
miques),  which  prepare  food  in  large  quantities,  but  allow  con- 
sumers to  carry  home  their  dishes  if  they  prefer,  and  in  smaller 
measure  by  the  establishment  of  consumers'  societies  which  con- 
fine themselves  to  buying  staple  articles  of  food  wholesale  for  dis- 
tribution among  their  members.  When  we  speak  of  saving,  we 
shall  refer  again  to  this  institution.  Here  we  may  remark  that 
these  public  kitchens  exist  in  a  large  number  of  towns,  and  are 
very  beneficial  to  the  poorer  classes.  The  "  portion  "  of  soup,  or 
vegetable,  or  meat,  already  cooked,  is  usually  sold  for  \d.  or  \\d. 
The  prices  in  London  have  been  further  lowered  by  the  employ- 
ment of  huge  ovens  which  cost  a  little  over  or  under  a  thousand 
pounds  apiece. 


CHAPTER  II. 
SAVING. 

I.  What  should  be  our  Conception  of  Saving? 

In  popular  speech  the  word  "saving"  has  a  perfectly  definite 
sense  :  it  simply  expresses  the  fact  of  abstaining  from  consumption, 
of  "  laying  by  "  some  wealth. 

The  term  can  scarcely  be  applied  except  to  one  kind  of  wealth ; 
viz.  the  precious  metals,  especially  when  in  the  form  of  hard 
money.  For  in  order  that  riches  may  be  "  laid  by,"  their  nature 
must  be  suitable  to  that  action ;  in  other  words,  they  must  be  able 
to  "  keep."  Now,  only  a  few  articles  of  wealth  satisfy  this  condi- 
tion. Most  wealth  rapidly  deteriorates,  and  that  process  is  often 
more  speedy  when  the  article  is  not  used  than  when  it  is  used. 
Furniture  and  cloth  fade ;  linen  becomes  torn,  and  grows  yellow 
in  the  press ;  iron  rusts  ;  articles  of  food  spoil,  or  are  eaten  up  by 
insects ;  even  wine,  after  first  improving,  is  at  last  injuriously 
affected  by  being  kept. 

This  simple  idea  of  saving  (viz.  "laying  by")  has  been  com- 
plicated by  economists  who  have  introduced  the  notion  of  in- 
vesting into  that  of  saving,  and  reserve  the  word  "  hoarding  "  for 
a  mere  accumulation  of  wealth.  Now,  nothing  authorizes  such 
a  distinction,  neither  facts  nor  logic.  Facts  do  not,  for  it  does 
not  necessarily  follow  that  all  savings  are  invested ;  on  the  con- 
trary, they  often  end  by  being  used  up.  Logic  does  not,  for  it 
is  not  accurate  to  denote  by  one  and  the  same  expression  two 
operations  which  are  not  only  distinct,  but  are  altogether  contra- 
dictory. "  To  save  "  means  not  to  consume  wealth,  whereas  "  to 
invest "  signifies,  as  we  shall  see,  our  handing  over  wealth  for 
consumption  by  others.     The  former  excludes  the  idea  of  con- 

379 


380  PRINCIPLES    OF    POLITICAL    ECONOMY. 

sumption ;  the  latter  necessarily  implies  it.  Hence  arises  the 
ambiguity  of  the  word  "  saving,"  and  this  double  meaning  has 
contributed  in  no  small  degree  to  the  obscurity  of  the  matter. 

In  this  chapter,  then,  we  shall  use  the  word  "  saving  "  as  a  simple 
expression  of  the  fact  of  not  consuming  wealth,  and  of  putting  it 
in  reserve,  as  a  synonym  of  hoarding,  if  that  be  preferred. 

We  have  already  seen  that  public  opinion,  which  is  so  favorable 
to  spending,  is  exceedingly  hostile  to  this  mode  of  employing 
wealth.  The  man  who  pays  too  much  attention  to  saving  is 
regarded  as  a  miser  unless,  indeed,  far  stronger  epithets  are  ap- 
plied ;  and  it  is  taken  for  granted  that  the  money  he  lays  by  is  so 
much  bread  which  has  been  stolen  from  the  workers. 

However,  even  if  we  take  saving  to  mean  hoarding,  even  if  we 
reduce  it  to  the  simple  fact  of  restraining  consumption  and  of 
conserving  a  certain  quantity  of  wealth,  it  is  hard  to  see  how 
such  acts  can  be  considered  inimical  to  the  interests  of  society ; 
on  the  contrary,  the  reverse  is  true.  Every  piece  of  money 
should  be  regarded  as  an  "  order,"  or  ticket,  which  gives  its 
holder  the  right  of  deducting  from  the  total  quantity  of  existing 
wealth  a  certain  amount  which  is  equal  to  the  value  of  the  coin. 
The  man  who  saves  —  that  is  to  say,  the  man  who  locks  up  this 
coin  in  a  drawer  —  merely  declares  that  for  the  present  he  will 
abstain  from  exercising  his  rights  and  from  deducting  his  portion. 
Surely  he  is  free  to  do  this ;  he  injures  no  one.  The  share  that 
he  might  have  consumed  will  be  consumed  by  others,  until  he  or 
his  heirs,  or  those  who  have  borrowed  from  him  (if  he  ever  decides  to 
invest  his  money),  come  in  their  own  good  time  to  use  these  orders. 

Is  he  reproached  with  withdrawing  from  circulation  a  certain 
quantity  of  money?  The  statement  is  a  tme  one  ;  but  that  money 
is  not  lost ;  it  is  not  even  damaged.  Sooner  or  later  it  will  emerge 
from  its  hiding-place.  Meantime,  the  only  possible  effect  of  this 
disappearance  of  a  certain  quantity  of  money,  if  indeed  the  sum 
is  large  enough  to  produce  any  perceptible  effect,  will  be  a  pro- 
visional lowering  of  prices,  or,  as  the  end  of  all,  an  advantage  for 
consumers  and  for  the  poor. 


CONSUMPTION,  381 

No  doubt,  if  this  putting  by  of  wealth  is  without  any  object,  or 
if  its  only  object  is  the  pleasure  of  now  and  again  gloating  over 
the  treasure-casket  and  the  gold  it  contains  (and  this  is  the  char- 
acteristic trait  of  all  miserly  Harpagons),  then,  indeed,  the  act  is 
worthy  of  all  the  sarcasms  with  which  misers  of  every  age  have 
always  been  riddled.  But  even  then,  though  the  act  is  a  foolish 
one  on  the  part  of  the  performer,  it  is  perfectly  inoffensive  from  a 
social  point  of  view,  far  more  inoffensive  than  the  doings  of  the 
spendthrift.  It  could  only  be  susceptible  of  real  damage  to  society 
when  it  is  practised  with  regard  to  objects  which  are  not  capable 
of  being  kept,  and  when  the  consequence  would  be  an  actual 
destruction  of  wealth.  We  might  instance  the  miser  in  Florian's 
fable,  who  was  in  the  habit  of  keeping  apples  till  they  were  rotten, 
and 

"  Lorsque  quelqu'une  se  gStait 
En  soupirant  il  la  mangeait." 

But  when  hoarding  is  made  with  regard  to  money,  and  that  is 
really  its  only  form,  the  above  disadvantage  is  not  to  be  feared. 

Still,  we  must  acknowledge  that,  though  the  popular  prejudice, 
which  ranks  the  spendthrift  far  above  the  "  miser,"  lacks  any  eco- 
nomical basis,  it  is  not  without  justification  from  the  point  of  view 
of  morals.  For  avarice,  or  even  excess  in  saving,  denotes  a  strong 
love  of  money  ;  whereas  prodigality  betokens  a  certain  carelessness 
with  regard  to,  and  a  certain  contempt  of,  this  vile  metal.  To 
quote  a  popular  saying  which  is  equally  expressive  and  picturesque, 
the  wastrel  is  a  "money  killer."  As  the  thirst  for  gold,  auri  sacra 
fames,  is  the  fountain-head  of  innumerable  evils,  popular  prejudice 
might  obtain  some  justification  in  that  quarter. 

However,  there  is  no  manner  of  doubt  that  in  most  cases  saving 
has  some  actual  end  in  view  ;  it  is  either  to  make  an  investment, 
i.e.  to  serve  for  the  production  of  new  wealth ;  or,  at  the  very 
least,  to  form  a  reserve  fund  wherewith  to  face  certain  necessities 
and  to  combat  unexpected  contingencies. 

In  these,  which  are  the  normal  conditions,  saving  is  not  only  an 
act  which  is  highly  intelligent  and  meritorious  on  the  part  of  the 


382  PRINCIPLES    OF    POLITICAL    ECONOMY, 

agent,  but  further,  it  is  extremely  beneficial  to  society,  and  we 
could  not  dispense  with  it  without  plunging  ourselves  into  certain 
ruin.  We  know,  in  fact,  that  it  is  impossible  to  create  new  wealth 
without  the  assistance  of  a  certain  amount  of  pre-existing  wealth ; 
in  other  words,  without  capital.  But  where  is  society  to  find  this 
capital  ?  Precisely  in  that  very  portion  of  wealth  which  has  not 
been  consumed  by  those  who  might  have  consumed  it :  to  those 
persons  society  cries,  "  I  see  you  do  not  need  this  wealth  !  Lend 
it  to  me,  so  that  I  may  employ  it  in  the  production  of  further 
wealth  !  "  And  saving  men  comply  with  this  request.  If  it  ever 
unfortunately  happened  that  every  member  of  a  particular  society 
had  consumed  all  that  he  had  the  right  to  consume,  and  that 
therefore  no  more  wealth  was  available  for  new  production,  in 
that  case  production  would  be  compelled  to  stop. 

11.     The  Conditions  Necessary  for  Saving. 

There  are  two  conditions  which  are  necessary  for  saving,  —  the 
possibility  of  reducing  one's  consumption,  and  the  willitigness  to 
do  so. 

Firstly.  To  be  able  to  save  —  i.e.  to  put  in  reserve  a  certain 
amount  of  wealth  —  it  is,  first  of  all,  necessary  that  the  quantity 
of  wealth  at  one's  disposal  should  be  at  least  large  enough  to 
satisfy  the  necessities  of  existence.  Unfortunately  this  primary 
condition  is  lacking  in  the  case  of  the  great  majority  of  mankind. 
No  doubt  man's  wants  are  so  elastic  that  they  may  be  regarded  as 
indefinitely  compressible  ;  and  a  person  whose  sole  income  was  a 
pound  of  bread  per  day  might  perhaps  accustom  himself  to  eat 
only  every  other  day,  and  might  thus  save  half.  But,  whenever 
saving  takes  the  form  of  a  charge  upon  man's  necessaries,  or  even 
upon  his  legitimate  wants,  it  is  disastrous  rather  than  useful.  Let 
us  repeat  here  what  we  said  a  few  pages  back.  Man  can  employ 
wealth  in  no  better  way  than  by  devoting  it  to  the  dcveloi)ment  of 
his  physical,  intellectual,  and  moral  faculties  ;  and  this  holds  good, 
even  from  a  purely  economic  point  of  view. 


CONSUMPTION.  ^8$ 

It  therefore  follows  that  saving  is,  in  a  way,  a  hixury  which  is 
scarcely  procurable  except  by  wealthy  societies,  and  even  in  these 
it  can  be  only  obtained  by  those  who  are  in  easy  circumstances ; 
that  is  to  say,  by  the  minority.  In  fact,  saving  is  the  special 
social  function  of  the  rich. 

The  opinion  is  constantly  repeated  that  nothing  would  be  easier 
for  workmen  than  to  save,  since  they  readily  find  the  means  of 
spending  many  thousands  of  pounds  in  nothing  but  brandy  and 
tobacco.  No  doubt  they  would  do  much  better  if  they  took  to 
the  savings  bank  the  sums  that  they  devote  to  such  useless  or 
baneful  consumption ;  but  they  would  do  better  still  if  they  em- 
ployed this  money  in  giving  themselves  and  their  families  more 
healthy  homes,  more  sanitary  clothing,  more  wholesome  food, 
more  frequent  medical  care,  more  complete  education,  and  so 
forth.  This  consumption  of  brandy  and  tobacco  is  not  taken  from 
workmen's  spare  money,  as  is  often  supposed,  but  is  most  usually 
subtracted  from  what  should  pay  for  their  bare  necessities.  It 
may  be  said  "  then  they  are  so  much  the  more  culpable."  That 
is  likely  enough,  but  the  sermons  we  may  wish  to  preach  them 
should  be  based  less  on  the  text  "  save  "  than  on  the  text  "  dis- 
tribute your  expenditure  better." 

Secondly.  It  is  not  enough  to  be  able  to  save.  The  will  to  save 
is  also  necessary,  and  this  second  condition  is  no  less  difficult  to 
fulfil  than  the  first  one.  All  saving,  inasmuch  as  it  implies  a  re- 
duction in  consumption,  also  impHes  some  suffering,  or  at  any  rate, 
a  privation  or  a  sacrifice ;  and  no  man  is  disposed  to  wantonly 
inflict  a  privation  on  himself. 

Now,  it  is  clear  that  the  sacrifice  demanded  by  saving  varies 
very  greatly  according  to  our  respective  share  of  this  world's  goods  ; 
and  that  it  may,  in  a  way,  pass  through  all  the  degrees  between 
zero  and  infinity. 

For  the  man  who  possesses  scarcely  more  than  the  bare  neces- 
saries of  life,  saving  is  altogether  impossible,  or  is  an  exceedingly 
painful  operation;  for,  so  to  speak,  it  presupposes  the  amputation 
of  some  essential  want. 


384  PRINCIPLES    OF    POLITICAL    ECONOMY. 

On  the  other  hand,  for  the  man  who  possesses  a  superabundant 
•quantity  of  wealth,  saving  is  no  longer  a  sacrifice.  A  sacrifice  ! 
nay,  it  may  even  become  a  necessity ;  for  in  the  long  run,  there 
is  a  limit  to  every  man's  powers  of  consumption,  even  though  they 
be  those  of  a  Gargantua.  A  term  must  come  both  to  our  wants 
and  to  our  desires,  and  Nature  herself  has  fixed  the  line  by  placing 
satiety  on  the  limiting  point. 

Every  man,  then,  who  thinks  of  saving  is  held  back  by  the  con- 
sideration of  the  larger  or  smaller  sacrifice  that  he  will  have  to 
impose  on  himself;  but,  in  an  opposite  direction,  he  is  exercised 
by  the  thought  of  the  larger  or  smaller  advantage  that  he  expects 
from  saving.  He  has  to  weigh  in  the  balance  two  wants,  —  a 
present  want  which  he  ought  to  refuse  to  satisfy  —  say  the  hunger 
which  is  pressing  him  —  and  a  future  want  which  he  would  like  to 
satisfy  by  due  provision  —  say  the  desire  to  have  bread  for  his  old 
age.  His  will  oscillates  between  these  two  conflicting  forces  ;  and 
according  as  one  or  other  is  the  more  powerful,  in  that  direction 
will  he  make  up  his  mind.  (We  pointed  out  the  same  conflict 
between  the  same  forces  when  we  were  discussing  labor.) 

This  faculty  of  thus  striking  a  balance  between  a  present  want 
and  a  future  want,  and  of  looking  at  both  of  them  as  present  in 
the  view  of  the  mind's  eye,  is  called  by  its  true  name,  "  foresight." 
But  we  must  not  think  that  this  faculty  is  possessed  by  every  one. 
For,  observe  that  the  present  want  is  a  reality ;  we  perceive  it 
physically ;  the  want  that  is  yet  to  come  is  a  pure  abstraction ; 
we  only  perceive  it  by  means  of  our  imagination.  We  therefore 
require  special  habits  of  thought  and  will  to  accustom  us  to 
abstraction,  and  such  can  only  arise  in  a  somewhat  advanced  state 
of  civilization.  (See  Bagehot,  Economic  Studies,  "  The  Growth 
of  Capital.") 

Our  occupations,  especially  in  these  latter-day  societies,  and 
our  training,  oblige  us  constantly  to  take  thought  for  the  future. 
Men  of  science,  seeking  to  penetrate  the  secrets  of  times  to  come, 
politicians,  anxious  for  the  morrow,  financiers,  who  have  plunged 
into  speculation,  ordinary  business  men,  who  are  occupied  with 


CONSUMPTION.  385 

the  bills  that  fall  due  at  the  end  of  each  month  and  the  inventory 
of  their  stock  that  they  make  at  the  close  of  each  year,  —  all  of 
us  unconsciously,  but  still  in  greater  or  less  degree,  have  become 
familiarized  with  this  unknown  future,  and  have  come  to  see  that 
it  is  an  item  which  we  must  take  into  account.  But  that  requires 
an  intellectual  effort  which  is  beyond  the  reach  of  the  savage,  who 
is  only  conscious  of  each  pressing  need,  and  who,  to  use  Montes- 
quieu's celebrated  phrase,  fells  the  tree  in  order  to  gather  its  fruit. 
Such  an  effort  is  even  hard  to  those  of  our  fellowmen  whose  social 
condition  most  closely  resembles  the  position  of  primitive  peoples. 
Hence  it  happens  that  the  want  of  foresight,  or  improvidence, 
is  the  characteristic  feature,  both  of  savage  races,  and  of  the  lower 
or  depraved  classes  of  our  modern  societies. 

It  is  clear  that  the  greater  and  the  more  palpable  the  advan- 
tages to  be  obtained  from  saving,  the  more  strongly  will  each 
man's  will  be  bent  in  the  direction  of  saving. 

Now  the  prospect  of  being  able  to  invest  our  savings  with  com- 
plete safety,  and  of  drawing  from  them  a  greater  or  less  amount 
of  interest  —  and  such  a  prospect  is  easily  realized,  thanks  to  the 
laws  and  institutions  of  the  present  day  —  should  obviously  act  as 
a  powerful  stimulus  to  saving.  As  we  shall  see,  one  of  the  strongest 
arguments  that  can  be  adduced  in  favor  of  interest  is  to  represent 
it  as  a  premium  or  bounty  on  saving.  But  to  regard  it  as  a  sine 
qua  non  of  saving,  as  is  done  by  most  economists,  is  to  err  on  the 
side  of  excess.  If  some  decree  based  on  coUectivist  principles 
were  to  abolish  interest  to-morrow,  no  doubt  there  would  no 
longer  be  any  person  who  would  be  disposed  to  lend  his  money, 
but  there  would  still  be  people  who  would  save ;  for,  as  we  cannot 
repeat  too  often,  investment  is  not  the  sole  end  of  saving.  Per- 
haps, indeed,  owing  to  the  very  fact  that  saving  could  no  longer 
be  renewed  and  increased  by  interest,  men  might  be  led  to  make 
even  greater  accumulations  of  money  than  they  do  now.  That 
might  be  harmful  rather  than  beneficial.  The  foregoing  supposi- 
tion is  not  hard  to  prove.  Let  us  suppose  that  a  man  wishes  to 
insure  for  himself  from  the  age  of  fifty,  and  for  his  children  after 


386  PRINCIPLES    OF    POLITICAL    ECONOMY. 

him,  a  sum  of  ^200  a  year.  Thanks  to  interest,  he  need  only 
save  a  capital  of  ^4000.  Were  there  no  such  thing  as  interest, 
if  we  reckon  twenty  years  for  himself  and  only  thirty  years  for  his 
son  after  him,  he  would  have  to  save  a  sum  of  50  times  ;^20o, 
or  ;^i  0,000. 

III.     Institutions  for  the  Facilitation  of  Savings 

In  all  civilized  countries  there  are  varied  and  ingenious  institu- 
tions for  the  purpose  of  facilitating  saving,  which  are  due  some- 
times to  the  initiative  of  legislators,  sometimes  to  the  independent 
action  of  private  persons.  The  two  most  characteristic  forms  are 
savings  banks  and  consumers''  societies. 

Section  i.    Savings  Banks. 

Savings  banks  are  institutions  which  are  intended  to  facilitate 
thrift,  by  taking  charge  of  sums  that  have  been  saved.  The  ser- 
vice they  render  the  depositor  is  to  place  his  savings  in  safety  as 
regards  robbers,  and  perhaps  even  more  so  as  against  himself. 

For  the  best  way  to  preserve  growing  savings  is  to  take  them 
out  of  the  keeping  of  their  owner,  in  order  to  prevent  him  from 
)delding  too  easily  to  the  temptation  of  spending  them.  An  in- 
genious application  of  this  idea  is  the  "money-box,"  which  is  so 
well  known  to  French  children  as  the  tire-lire,  an  earthenware  jar, 
into  which  coins  are  dropped  through  a  tiny  slit.  To  regain 
possession  of  the  coin  the  jar  must  be  broken ;  and  though  that 
is  not  hard  to  do,  this  slight  obstacle  is  thought  to  be  sufficient 
to  give  time  for  reflection,  and  to  enable  the  child  to  strengthen 
himself  against  temptation. 

The  savings  bank  is  only  an  improved  "  money-box."  No  doubt 
the  small  sums  deposited  therein  can  be  used  by  the  depositor  at 
his  own  discretion ;  still,  they  are  neither  in  his  hand  nor  in  his 
pocket.  In  order  to  recover  them,  certain  formalities  must  always 
be  gone  through,  and,  in  any  case,  more  time  is  required  than  is 
occupied  by  the  breaking  of  a  "  money-box." 


CONSUMPTION.  387 

In  order  to  encourage  saving,  depositors  are  also  guaranteed  a 
small  interest  by  these  banks;  but  this  interest  should  only  be 
regarded  as  a  sort  of  premium  on,  or  stimulus  to,  saving,  and 
should  never  be  too  high.  The  business  of  a  savings  bank  is  not 
to  serve  as  an  investment  institution.  (Thus  in  France  the  maxi- 
mum sum  that  can  be  deposited  has  been  fixed  at  £So ;  in  our 
opinion  this  limit  is  too  high,  and  it  would  be  better  to  return  to 
the  former  maximum  of  ;^40.)  Its  object  is  to  enable  people 
to  lay  by  a  little  money  for  emergencies,  or  even  to  form  a  small 
capital.  But,  when  once  this  capital  has  been  got  together,  and 
the  depositors  wish  to  invest  it,  i.e.  to  make  it  yield  returns,  in 
that  case  the  money  ought  to  be  returned  by  the  savings  bank, 
which  has  played  its  part.  Other  institutions  will  now  take  charge 
of  such  capital;  viz.  those  which  we  have  examined  under  the 
head  of  credit  societies,  banks,  Credit-Foncier,  and  so  forth. 

We  may  note  that  in  France  savings  banks  are  instituted  either 
by  private  persons,  or  by  municipalities,  or  by  the  State,  in  which 
latter  case  they  are  held  only  at  post-ofifices.  But  all  alike  are 
compelled  to  pay  the  funds  that  they  receive  into  the  office  of 
deposits  and  lodgements  ("  Caisse  des  depots  et  consignations  ")  ; 
in  other  words,  into  the  State  coffers.  Although  this  requirement 
of  the  law  is  intended  to  afford  perfect  security  to  depositors,  it 
has  been  sharply  criticised,  and  not  without  reason.  In  the  first 
place,  by  placing  in  the  hands  of  the  government  a  sum  that  is 
now  not  far  from  ;^i  20,000,000,  and  that  is  yearly  increased  by  an 
amount  ranging  between  ^^8,000,000  to  ;^i  2,000,000,  it  swells 
beyond  due  measure  a  debt  which  is  all  the  more  dangerous, 
inasmuch  as  it  is  always  payable  on  the  earliest  demand,  and 
besides  laying  heavy  responsibilities  upon  the  government  also 
exposes  it  to  dangerous  temptations.  Again,  when  once  these 
moneys  have  been  swallowed  up  by  the  maw  of  the  Treasury,  they 
absolutely  cease  to  be  of  any  further  use,  though  they  might  be 
easily  employed  to  more  advantage.  Thus,  in  Italy,  where  these 
savings  banks  are  remarkably  well  organized,  the  greater  part  of 
the  receipts  are  devoted  to  loans  to  landowners  or  to  agricul- 


$88  PRINCIPLES    OF    POLITICAL    ECONOMY. 

turists.  As  the  interest  paid  to  depositors  is  very  low,  only  a 
small  interest  need  be  asked  from  agriculturists ;  and  this  is  a 
priceless  boon  to  agriculture.  Meantime,  the  depositors  enjoy 
approximately  the  same  security. 

Section  2.    Consumers'  Co-operative  Societies. 

The  object  of  the  institutions  which  are  called  consumers' 
co-operative  societies  {societes  co-operatives  de  consoiiwiaiion)  is 
to  facilitate  thrift  by  doing  away  with  that  element  of  privation 
which  we  have  already  pointed  to  as  a  condition  inherent  to  all 
saving.  They  succeed  in  solving  that  apparently  insoluble  prob- 
lem, and  in  creating  "  automatic  saving  "  by  means  of  a  mechan- 
ism which  is  as  simple  as  it  is  ingenious. 

A  larger  or  smaller  number  of  persons  join  together  to  buy  in 
common,  and  therefore  wholesale,  all  or  part  of  the  articles  that 
are  necessary  for  their  consumption.  These  goods,  which  have 
been  bought  at  wholesale  prices,  are  then  re-sold  to  its  members 
by  the  society,  at  retail  prices,  and  the  gain  which  is  realized  on 
the  difference  is  at  the  end  of  the  year  distributed  among  all  the 
members  according  to  the  amount  of  their  purchases.  For  exam- 
ple, if  a  member  has  bought  ^20  worth  of  groceries  during  the 
year,  and  the  society  has  made  a  profit  of  10  per  cent,  at  the  end 
of  the  year  he  will  find  that  he  has  effected  a  saving  of  £^2  which 
will  have  cost  him  nothing ;  I  mean  that  he  has  not  been  obliged 
to  reduce  his  consumption  in  anything.  He  has  consumed  as  much 
as  before  ;  he  has  had  goods  of  better  quality  ;  their  price  has  not 
been  dearer,  or  it  has  been  even  cheaper,  than  what  he  would  have 
had  to  pay  the  shopkeeper  at  the  corner  of  the  street.  In  spite 
of  all  this,  he  has  saved  ;  and  the  more  he  has  bought,  the  more 
he  has  saved.  Thus  people  have  been  able  to  say,  in  a  kind  of 
witty  paradox,  that  a  way  has  been  found  of  effecting  a  saving  by 
means  of  spending  ! 

The  origin  of  these  institutions  begins  with  the  ever-famous 
history  of  the  Rochdale  Pioneers,  in  1844.  Since  then  they  have 
undergone  a  remarkable  development  in  all  countries,  but  espe- 


CONSUMPTION.  389 

cially  in  England.  In  that  country  these  societies  reckon  no  less 
than  a  milHon  members  (that  is  to  say,  a  million  families,  or  a 
seventh  of  the  population).  They  do  business  to  the  amount  of 
_;^36,ooo,ooo ;  and  the  savings  which  the  working  classes  have 
thus  been  able  to  make  yearly  exceed  ;^4,ooo,ooo.  In  France, 
too,  especially  during  the  last  few  years,  a  number  of  these  societies 
have  formed  a  federation  after  the  English  fashion.  They  hold 
yearly  congresses,  and  have  founded  a  wholesale  store  to  supply 
provisions  on  a  large  scale  to  syndicated  consumers'  societies. 

The  object  assigned  by  some  of  these  institutions  is  merely  to 
rediice  expetises,  and  not  to  effect  a  saving.  In  these  cases  they 
sell  goods  to  their  members  at  the  cheapest  rate  possible ;  i.e.  at 
the  cost  price.  This  is  a  very  inferior  form  of  association,  and  is 
open  to  criticism  in  several  respects.  It  usually  prevents  the 
society  from  expanding  its  business,  and  always  exasperates  the 
retail  trade. 

On  the  contrary,  other  of  these  institutions  have  a  loftier  end 
in  view.  One  object  is  to  gradually  do  away  with  the  middlemen 
between  the  producer  and  the  consumer,  and  thus  free  society 
from  an  overwhelming  burden  ;  another  is  to  progressively  emanci- 
pate the  working  classes,  by  giving  them  the  means  of  accumu- 
lating a  huge  capital,  which  will  enable  them  to  found  producers' 
co-operative  societies,  and  to  carry  on  a  victorious  struggle  against 
capitalist  industry.  The  English  societies  now  possess  about 
;:i^5,ooo,ooo  in  invested  funds.  This  accumulation  of  capital  is  an 
item  in  the  programme  of  the  French  federation  of  co-operative 
societies.  We  shall  speak  of  this  further  on,  When  we  deal  with 
co-operative  societies  of  production. 


CHAPTER  III. 
INVESTING. 

I.    What  should  be  our  Conception  of  Investing? 

To  invest  wealth  is  to  employ  it  productively ;  to  invest  corn, 
we  must  sow  it  instead  of  eating  it ;  coal  must  be  consumed  in 
the  furnace  of  an  engine  instead  of  being  burnt  on  the  grate  of 
our  hearth ;  a  horse  must  be  yoked  to  the  plough,  not  harnessed 
to  a  carriage ;  and  money  must  be  made  to  yield  returns,  and  not 
be  merely  spent. 

It  follows  from  the  above  examples,  as  it  would  from  any  pther 
instances  that  might  be  given,  that  investing,  just  as  much  as 
saving,  is  a  mode  of  co7isumitJg  wealth.  There  is  only  one  differ- 
ence, but  that  is  a  great  one  :  spending  is  a  consumption  which 
merely  serves  to  afford  us  some  enjoyment,  whereas  investing  is  a 
consumption  that  aids  in  the  reproduction  of  new  wealth. 

When  money  is  the  article  in  question  (and  our  examination 
of  the  various  modes  of  employing  wealth  is  almost  entirely 
confined  to  this  form),  investing  may  take  two  different  shapes. 
The  man  who  wishes  to  give  productive  employment  to  his  money 
can  choose  between  the  two  following  courses  :  — 

Firstly.  He  can  lend  this  money  to  some  one  who  will  make 
use  of  it.  He  can  do  this  either  by  lending  it  directly  by  means 
of  a  mortgage  or  other  ordinary  business  loan,  or  by  buying 
credit  papers  in  the  shape  of  government  stock,  railway  shares  or 
debentures,  etc.  It  is  this  mode  of  employment  which  is  usually 
referred  to  wherever  "  investment "  is  spoken  of. 

Secondly.  His  other  course  is  to  devote  this  money  to  the 
direct  establishment,  on  his  own  account,  of  some  commercial, 
industrial,  or  agricultural  business ;  or  he  can  build  a  house  in 
390 


CONSUMPTION.  391 

order  to  let  it.  This,  too,  is  a  mode  of  investing  his  money  or, 
at  any  rate,  of  making  it  yield  returns. 

In  either  case  the  money  which  is  thus  invested  receives  the 
name  of  capital,  and  it  deserves  that  name  ;  for  (except  for  acci- 
dents or  miscalculations)  it  produces  or  ought  to  produce  an 
income  for  its  owner  under  the  form  of  interest,  dividend,  arrears, 
profits,  or  gains. 

It  is  true  that  investments  are  not  always  productive  for  those 
who  have  made  them,  and  even  less  so  for  society  at  large.  For 
instance,  at  least  three-fourths  of  the  30  milliards  of  francs  (or 
;^ 1, 2 00,000,000  sterling)  which  have  been  lent  to  the  French 
government  since  the  beginning  of  this  century,  have  only  been 
used  to  fire  cannon  and  kill  many  men,  an  occupation  which  can 
scarcely  be  called  intrinsically  productive.  Inasmuch  as  these 
30  milliards  of  francs  are  totally  unproductive  as  regards  the 
country,  how  is  it  that  each  year  they  return  about  ^^40,000,000 
to  their  owners,  i.e.  to  holders  of  government  stock  ?  The  expla- 
nation is  exceedingly  simple.  The  State  yearly  levies  on  the 
incomes  of  the  tax-payers,  that  is  to  say,  on  the  product  of  the 
labor  of  all  Frenchmen,  the  ^2^40,000,000  which  are  necessary  for 
the  payment  of  the  interest  on  these  ruinous  transactions.  To 
act  honestly  it  could  scarcely  do  otherwise,  for,  qua  borrower,  it 
is  bound  by  a  contract. 

On  the  other  hand,  the  ^400,000,000  which  have  been  put  into 
railways,  the  ;^40,ooo,ooo  devoted  to  the  piercing  of  the  Suez 
Canal,  and  other  even  more  fortunate  investments,  have  been  em- 
ployments of  wealth  which  have  been  highly  productive,  not  only 
for  their  investors,  but  for  the  country  too,  and  even  for  mankind. 
Surely,  then,  the  most  useful  employment  of  wealth  from  a  social 
point  of  view  is  to  invest. 

This,  however,  is  not  the  popular  opinion ;  it  is  usually  thought 
that  the  man  who  spends  his  money  makes  trade  brisker,  and  gives 
workmen  more  work  to  do,  than  the  man  who  is  content  to  invest 
it ;  and  at  any  rate,  when  the  investment  consists  in  buying  securi- 
ties, which  are  to  be  locked  up  in  his  safe  or  docketed.     This 


392  PRINCIPLES    OF    POLITICAL    ECONOMY. 

is  imagined  to  be  only  a  form  of  hoarding.  Those  who  reason 
after  such  a  fashion  have  really  no  idea  of  the  real  meaning  of 
investment. 

Let  us  suppose  that  a  man  devotes  his  money  to  buying  railway 
debentures  —  say  in  the  Paris- Lyon- Mediterranee —  and  purchases 
these  from  the  company  direct  over  the  counter  at  their  offices. 
(I  say  "direct"  ;  for  if  the  security  is  bought  on  the  Bourse,  there 
is  only  a  simple  transfer.)  Our  capitalist  is  merely  substituted  for 
the  former  holder  of  the  stock,  and  in  that  there  is  no  productive 
employment  from  a  social  point  of  view.  Still,  we  must  observe 
that  the  capitalist  who  has  sold  his  security  will  also  be  obliged  to 
find  some  productive  employment  for  the  money  he  has  received 
in  exchange  ;  and  probably  he  has  effected  this  sale  precisely 
because  he  had  some  other  employment  in  view.  To  return  to 
our  buyer  from  the  company  direct.  He  hands  over  to  the  com- 
pany the  value  of  this  stock  in  money.  Now  what  will  they  do 
with  his  money  ?  Will  they  lock  it  up  in  their  strong-box  ?  Surely 
not,  for  then  they  might  have  abstained  from  borrowing  it.  They 
will  use  it  for  the  purchase  of  coals,  of  rails,  of  sleepers,  for  the 
payment  of  their  employees,  of  the  workmen  who  make  their 
engines,  of  the  navvies  who  construct,  and  the  plate-layers  who 
repair,  their  lines.  It  would  be  the  same  with  every  other  imagin- 
able form  of  investment.  The  money  is  spent  even  when  it  is 
lent  to  the  State,  though  then  not  usually  in  a  productive  manner. 
But  certainly  the  government  borrows  it,  because  it  requires  money 
for  the  payment  of  its  contractors,  for  the  manufacture  of  muskets, 
and  so  forth.  In  any  case,  then,  the  invested  money  will  be  spent 
by  those  to  whom  it  has  been  lent,  if  not  by  the  owner  himself. 
It  will,  therefore,  do  good  to  trade,  and  will  be  used  for  the  pur- 
chase of  goods  or  the  payment  of  workmen.  But,  instead  of  being 
spent  unproductively,  it  will  be  expended  in  a  productive  manner. 

Before  proceeding  further  we  must  answer  a  possible  objection. 
It  might  be  said,  were  each  man  to  make  it  a  rule  to  invest  all  his 
money,  then  no  one  would  consume  any  more,  or,  at  any  rate, 
consumption  would  be  restricted  to  the  bare  necessaries  of  life. 


CONSUMPTION.  393 

In  that  case,  are  we  not  obliged  to  conclude  that  production  must 
stop,  and  that  henceforth  there  would  be  no  more  industrial  under- 
takings, and  no  more  work  for  any  one  ? 

In  the  first  place,  this  objection  is  a  contradiction  in  terms,  for 
every  investment  necessarily  supposes  production.  If,  then,  pro- 
duction had  to  cease,  all  investing  would  become  impossible ;  and 
capitalists  would  be  obliged,  willy  nilly,  to  revert  again  to  con- 
sumption. Moreover,  those  who  argue  in  this  fashion  forget  that 
investing  can  only  be  the  act  of  a  minority,  the  act  of  those  only 
who  have  more  than  they  require.  Thus  no  great  harm  would 
be  done,  if  on  an  otherwise  wild  hypothesis,  all  rich  people  were 
to  take  to  living  on  dry  bread  and  cold  water.  No  doubt,  in 
consequence  of  a  lack  of  demand,  there  would  be  a  cessation  of 
the  production  of  articles  destined  for  consumption  by  the  wealthy 
classes ;  but  commodities  necessary  for  the  consumption  of  the 
masses  would  still  continue  to  be  produced.  Again,  as  the  pro- 
duction of  such  articles  would  henceforward  be  the  only  outlet  for 
the  investments  of  the  rich,  it  would  thereby  be  powerfully  stim- 
ulated. These  articles  would  become  far  more  plentiful  in  the 
market.  They  would  consequently  be  far  less  dear,  and  all 
people  would  be  benefited. 

Still,  there  is  one  thing  that  may  differentiate  invested  money 
from  money  that  is  only  spent.  Perhaps  the  former  may  be  ex- 
pended further  off,  outside  the  owner's  country.  This  circumstance 
has  prevented  people  from  clearly  perceiving  that  the  invested 
money  is  spent.  Say  that  with  his  savings  the  capitalist  buys 
Panama  debentures,  then  the  money  he  has  saved  may  perhaps 
go  to  pay  negroes  or  Chinese  coolies  ;  whereas,  if  he  had  spent 
this  sum,  it  might  have  directly  benefited  the  workmen  of  his  own 
country.  In  this  regard,  the  latter  have  some  grounds  for  com- 
plaining. Still,  it  is  enough  to  remark  that,  if  the  savings  of  the 
French  do  aid  in  providing  work  for  foreign  laborers,  in  a  recip- 
rocal manner  the  savings  of  foreigners  may  come  to  be  invested 
in  France,  and  give  employment  to  French  workmen.  Thus  a 
compensation  may  be  effected  up  to  a  certain  point. 


394  PRINCIPLES    OF    POLITICAL    ECONOMY. 

In  order  that  no  obscurity  whatever  should  rest  on  this  impor- 
tant subject,  we  must  now  eUminate  money;  for  it  is  clear  that  in 
these  operations  money  is  only  a  symbol,  and  that  of  itself  it  can 
produce  nothing. 

A  subscriber  for  a  railway  debenture  of  jQs°,  which  is  to  yield 
him  £^  in  interest,  might  use  the  following  language  if  he  knew 
any  political  economy :  "  Here  are  ^50  worth  of  tickets  which 
give  me  the  right  of  deducting  an  equal  value  from  the  whole 
sum  of  existing  wealth  to  supply  my  own  consumption.  Now, 
for  my  part,  I  prefer  not  to  exercise  this  right.  I  therefore 
hand  these  '  tickets  '  over  to  you  ;  and  by  means  of  them  you  can 
exercise  the  right  I  have  refused,  and  levy  that  amount  of  wealth 
in  coal  or  iron,  or  whatever  you  may  require  for  your  production. 
Or  if  you  pass  on  these  '  tickets '  to  your  workmen  in  the  form  ot 
wages,  they  may  be  able  by  means  of  them  to  obtain  the  com- 
modities which  are  necessary  for  their  existence.  However,  as  I 
do  not  intend  to  make  a  present,  either  to  you  or  your  workmen, 
of  that  portion  of  wealth  which  was  mine  by  right,  I  stipulate  that 
you  shall  give  me  ;£t^  as  interest  on  the  new  wealth  you  may  pro- 
duce by  your  own  work  or  by  the  labor  of  the  men  in  your  employ." 

To  sum  up  :  to  spend  your  money  is  to  consume  a  certain  quan- 
tity of  wealth  on  your  own  account ;  to  invest  your  money  is  to 
transfer  to  others  your  rights  and  your  power  of  cotisumptiofi. 
No  doubt  this  transfer  is  not  gratuitous ;  but  still  we  can  see  the 
absurdity  of  the  prejudice  which  believes  that  to  invest  is  to  keep 
for  yourself,  and  that  to  spend  is  to  distribute  among  others.  We 
can  also  observe  the  profound  truth  of  John  Stuart  Mill's  sentence 
{Political Economy,  Book  IV,  sect.  9),  "A  person  who  buys  com- 
modities and  consumes  them  himself  does  no  good  to  the  laboring 
classes,  and  it  is  only  by  what  he  abstains  from  consu}?iing  that  he 
benefits  them." 

Socialists  declare  that  this  transfer  is  like  the  distribution  of 
shares  made  by  the  lion  in  the  fable,  and  that  it  really  means  the 
robbery  of  the  workers.  When  we  discuss  the  subject  of  profits, 
we  shall  be  able  to  examine  this  statement.     But,  even  admitting 


CONSUMPTION.  395 

that  the  levy  made  by  the  capitaHst  is  exorbitant  and  unjustifiable, 
in  any  case  it  will  always  leave  some  scraps  over  for  the  workman  ; 
whereas,  if  the  capitalist  consumed  all  his  capital  himself,  there 
would  not  be  a  crumb  remaining. 

II.    The  Conditions  Necessary  for  Investing. 

These  conditions  are  two  in  number,  —  the  confidence  that  we 
shall  get  our  money  back  again,  that  is  to  say,  so7ne  security ,  and 
the  prospect  of  some  gain  to  be  made. 

I.  Let  us  consider  the  security  first  of  all.  In  order  to  invest 
his  savings,  i.e.  to  give  them  productive  employment,  a  man  must 
give  them  up  ;  he  must  hand  them  over  for  reproductive  con- 
sumption ;  he  must  agree  to  their  destruction.  Now  no  one  will 
consent  to  this  unless  he  firmly  believes  that  this  wealth,  of  which 
he  provisionally  deprives  himself,  will  not  be  lost,  but  will  return 
to  him  augmented.  Security,  alone,  can  give  us  such  an  assur- 
ance :  first,  political  security,  which  guarantees  us  against  the  con- 
fiscations of  an  oppressive  government,  against  revolutions  from 
within  and  invasions  from  without ;  next,  legal  security,  which 
guarantees  our  rights  over  the  capital  we  have  invested,  by  the  aid 
of  all  those  juridical  institutions  whose  aim  is  to  assure  the  carry- 
ing out  of  contracts,  securities,  mortgages,  concessions,  and  legal 
powers ;  finally,  7noral  security,  which  consists  in  the  progress  of 
public  morality  and  the  fidelity  of  all  of  us  in  keeping  our  engage- 
ments ;  without  this,  indeed,  all  the  other  guarantees  would  be 
certainly  insufficient. 

In  an  absence  of  this  security,  those  who  have  saved  will  not 
consent  to  let  their  capital  pass  out  of  their  hands,  and  will  pre- 
fer to  keep  it  by  means  of  a  hoarding,  which  is  sterile  but  free 
from  danger.  Hence  it  happens  that  we  see  so  many  cases  of 
hoarding  and  so  few  instances  of  investing  in  troubled  times  like 
the  Middle  Ages,  or  in  countries  without  regular  government,  like 
those  in  the  East.  Under  such  circumstances  the  only  employ- 
ment that  is  available  for  capital  is  trade  in  articles  of  luxury,  for 


396  PRINCIPLES    OF    POLITICAL    ECONOMY. 

as  these  possess  great  value  in  small  bulk,  they  can  be  transported 
and  concealed  with  ease.  Even  land,  then,  fails  to  present  the 
conditions  necessary  for  this  desired  security ;  for,  though  it  can- 
not be  destroyed,  it  can  be  confiscated,  pillaged,  and  ground 
down  with  taxes.  On  the  other  hand,  the  present  day  offers  to 
would-be  investors  a  thousand  resources  which  were  unknown  to 
our  fathers ;  for  investments  are  innumerable,  and  very  many  of 
them  are  perfectly  safe.  In  181 5  ovAy /our  securities  were  quoted 
on  the  Paris  Bourse;  in  1888  there  were  767,  without  reckoning 
hundreds  more  which  were  quoted  either  in  the  departments  of 
France  or  on  foreign  Bourses. 

2.  Some  gain  must  be  made,  either  in  the  shape  of  the  profits, 
properly  so-called,  that  are  realized  when  a  man  turns  his  money 
to  account  himself,  or  as  interest  when  he  lends  it  to  others.  For 
if  invested  capital  were  to  return  to  its  owner  just  as  it  had  left 
him,  it  would  not  be  worth  while  to  part  with  it,  and  it  would 
have  been  simpler  to  keep  it.  As  we  have  shown  above,  the 
extinction  of  all  interest  would  not  necessarily  do  away  with  all 
saving,  but  it  would  certainly  put  a  stop  to  all  investing. 

However,  it  would  not  be  right  to  infer  from  this,  that  the 
necessary  result  of  a  fall  in  interest  must  be  a  restriction  of  invest- 
ing; on  the  contrary,  it  should  stimulate  investment.  People 
usually  save  in  order  to  make  sure  of  a  certain  income  that  shall 
be  enough  for  them  to  live  on,  let  us  say  £a'^o  a  year.  If  the 
rate  of  interest  is  5  per  cent,  the  attainment  of  this  end  will 
require  the  investment  of  a  capital  of  ;^8ooo ;  but,  if  the  rate  of 
interest  falls  to  2  per  cent,  the  capital  necessary  for  the  same 
result  will  be  ^20,000.  Under  such  circumstances  it  is  almost 
certain  that  the  fall  in  the  rate  of  interest  will  act  as  a  spur  which 
will  incite  men  to  work  longer  and  save  more.  Still  there  is  a 
limit,  though  it  is  difficult  to  fix ;  if  the  rate  of  interest  were  to 
fall  to  one-tenth  per  cent,  and,  therefore,  it  were  necessary  to  save 
a  capital  of  ^^400,000  in  order  to  assure  an  income  of  £,A<^^> 
it  is  probable  that  no  one  would  invest  henceforward  ;  for  the 
immense  majority  of  people  would  think  that  so  poor  a  result  did 


CONSUMPTION.  397 

not  deserve  the  trouble  of  temporarily  dispossessing  themselves 
of  their  money.  They  would  continue  to  save  all  the  same  for 
the  purpose  of  satisfying  future  wants,  but  instead  of  employing 
their  savings  productively,  they  would  be  content  with  putting 
them  away  in  a  safe  place  and  with  consuming  them  day  by  day 
according  to  circumstances. 

We  need  not  now  devote  a  separate  chapter  to  the  study  of  the 
institutions  for  the  facilitation  of  investing,  as  we  did  when  treat- 
ing of  saving.  In  our  days  numberless  facilities  are  afforded  to 
people  who  wish  to  invest  their  money :  there  are  industrial  or 
financial  enterprises,  especially  in  the  form  of  joint-stock  com- 
panies ;  there  are  undertakings  dealing  with  agriculture  or  landed 
property,  notably  those  carried  on  by  means  of  the  credit  fonder ; 
and  there  are  the  constant  borrowings  of  the  State,  particularly  the 
issuing  of  pubUc  loans. 


BOOK   IV. 

DISTRIBUTION. 

Part  I.  —  The  Various  Principles  of  Distribution. 
CHAPTER  I. 

THE  SOCIAL  PROBLEM. 

I.    Is  there  a  Social  Question? 

The  distribution  of  wealth  comprises  all  those  topics  that  are 
now,  by  common  agreement,  called  social  questions,  or,  in  brief, 
the  social  question.  This  is  none  other  than  the  ever-present  sub- 
ject of  the  rich  and  the  poor. 

But  is  there  a  social  problem?  The  liberal  school  formally  de- 
nies it,  and  refuses  to  hold  that  the  question  is  a  reasonable  one 
merely  because  it  has  been  debated  for  a  thousand  years  or  so.  The 
question  of  perpetual  motion  has  also  been  discussed  for  centuries. 
This  school  says  that  there  is  no  social  question,  if  we  mean  by 
that  the  problem  of  determining  how  wealth  should  be  distributed 
among  men ;  and  it  is  a  singular  fact  that  the  great  classical  econ- 
omists, Turgot,  Adam  Smith,  J.  B.  Say,  and  Ricardo,  neither  dis- 
cussed nor  even  enunciated  the  problem  of  a  better  distribution 
of  wealth.  It  is  altogether  irrational  to  attempt  to  make  men 
happy  by  any  a  priori  formula,  even  were  that  formula  the  expres- 
sion of  ideal  justice.  We  cannot  distribute  wealth,  for  it  distrib- 
utes itself  in  virtue  of  natural  laws  which  men  have  not  invented, 
cannot  change,  and  have  no  motive  to  alter ;  for,  taking  all  in  all, 
398 


DISTRIBUTION.  399 

they  approach  the  largest  measure  of  justice  that  we  can  hope  to 
expect  from  any  social  system.  In  fact,  the  automatic  working  of 
these  laws  enables  each  member  of  modern  society  to  be  remuner- 
ated ifi  proportion  to  the  services  rendered  by  him. 

The  method  is  as  follows  :  Every  man  offers  to  the  public  what 
he  possesses*;  the  landowner  his  crops,  the  manufacturer  the  pro- 
duct of  his  labor,  and  he  who  possesses  nothing  offers  his  bodily 
strength  or  his  intelligence.  The  value  of  this  commodity  or  of 
this  labor  power  is  determined  in  the  market  by  the  ordinary  laws 
of  value  which  amount  to  this  well-known  principle  :  things  have 
more  or  less  value,  according  as  they  answer  to  a  more  or  less 
intense  desire  felt  by  men,  according  as  they  are  able  to  satisfy 
more  or  less  imperious  wants,  according  as  they  are  more  or  less 
useful,  to  employ  that  term  in  a  wide  sense.  Thus,  when  we  say 
that  each  man's  remuneration  is  determined  by  the  value  of  the 
articles  he  can  supply  or  of  the  kind  of  labor  he  can  offer,  we 
mean  that  his  share  in  the  distribution  of  wealth  is  proportional 
to  the  amount  of  social  utility  he  has  supplied ;  i.e.  to  the  services 
he  has  rendered.  That  is  the  formula  which  the  school  of  Bastiat 
loves. 

Withal  it  is  ingenious,  and  is  quite  convincing  to  those  who 
only  desire  to  be  shown  that  the  existing  order  of  things  is  excel- 
lent ;  but  its  insufficiency  is  palpable  if  we  merely  recapitulate  our 
theory  of  value.  The  reasoning  would  be  correct  were  the  value 
of  things  determined  by  labor,  or  even  by  social  utility,  under- 
standing by  that  the  actual  aid  given  to  the  labors  of  society  as 
a  whole.  But  that  is  not  the  case.  The  value  of  things  is  deter- 
mined by  a  body  of  complex  causes,  which  are  usually  summed 
up  in  the  law  of  supply  and  demand,  —  a  natural  law,  no  doubt, 
but,  by  that  very  circumstance,  as  foreign  to  any  idea  of  justice  or 
morality  as,  say,  the  law  of  gravity. 

Take  an  example.  Compare  a  miner,  who  is  paid  three  shillings 
a  day  for  extracting  coal,  with  a  diva  who  receives  ^160  a  night 
for  singing  at  a  theatre.  If  we  ask  why  the  former,  who  produces 
the  bread  of  manufacture,  is  paid  a  thousand  times  less  than  the 


400  PRINCIPLES    OF    POLITICAL   ECONOMY. 

singer  who  only  affords  a  passing  pleasure  to  a  few  dilettanti,  the 
school  of  Bastiat  will  reply  boldly,  "  Because  she  has  rendered  to 
society  a  thousand  times  greater  service  than  the  miner  has,  and 
the  proof  is  that  society  consents  to  pay  her  a  thousand  timeS 
more.  Society  may  be  wrong,  but  the  price  it  pays  is  our  only 
mode  of  estimating  the  value  of  services  rendered  to  it."  We 
might  also  be  reminded  of  the  repartee  made  by  a  great  singer  to 
the  Empress  Catherine,  for  complaining  that  she  dared  to  ask  for 
a  higher  salary  than  her  marshals  received  :  "  Very  well,  then,  get 
your  marshals  to  sing  !  " 

In  all  this  there  is  clearly  a  play  upon  the  word  "service."  The 
fact  that  the  singer  is  paid  far  more  highly  than  the  miner  does 
not  show  that  she  has  aided  society  in  a  more  useful  fashion,  or 
even  that  the  kind  of  satisfaction  she  can  give  answers  to  the  more 
intense  wants  of  men  in  general ;  it  only  shows  that  it  satisfies  the 
desires  of  a  small  number  of  men.  It  further  proves  that  it  is 
easier  to  find  men  to  act  as  miners  than  it  is  to  discover  opera 
singers  with  their  throats  constructed  in  a  certain  manner.  Simi- 
larly, a  picture  signed  by  a  celebrated  name  may,  as  was  recently 
the  case,  fetch  the  price  of  ^30,000,  if  it  excites  the  desire  of  any 
one  wealthy  man. 

Our  example  was  a  fancy  one,  but  many  others  may  be  lighted 
on  everywhere.  Two  farmers  take  exactly  the  same  amount  of 
effort  to  bring  to  market  sacks  of  corn  of  identical  quality,  and 
therefore  of  equal  value  as  regards  social  utility.  If  one  of  the 
farmers  has  the  good  luck  to  see  his  neighbors'  crops  damaged 
by  hail  or  frost,  the  remuneration  he  receives  will  be  ever  so  much 
higher.  An  English  nobleman,  who  owns  much  property  in  Lon- 
don, allows  contractors  to  build  houses  on  his  land,  at  a  rent  which 
he  increases  at  each  renewal  of  the  lease,  in  proportion  to  the 
rise  of  the  value  of  land  and  of  house  rents.  It  is  clear  that  his 
remuneration,  which  amounts,  perhaps,  to  a  million  pounds,  is  de- 
termined quite  naturally  by  the  law  of  supply  and  demand,  but 
it  is  not  so  easy  to  see  how  this  remuneration  is  proportional 
to  the  service  rendered.     Even  if  we  call  it  his  "service  "  allowing 


DISTRIBUTION.  4OI 

people  to  live  on  his  land,  it  is  not  easy  to  perceive  the  reasons 
of  justice  or  of  social  utility  which  have  granted  the  nobie  lord  the 
pleasant  privilege  of  rendering  his  fellow- men  services  which  are 
so  dearly  paid  for. 

We  may  be  told  that  this  mode  of  distribution  is  natural,  though 
we  can  trace  in  most  countries  historical,  and,  in  a  way,  artificial 
causes,  such  as  conquest  or  oppressive  laws,  which  have  greatly 
modified  distribution.  If  we  are  told  that  this  mode  of  distribu- 
tion is  necessary,  we  shall  accept  the  dictum  in  a  certain  measure, 
for  we  shall  find  that  the  system  is  not  easy  to  replace.  But  let 
us  not  be  told  that  it  is  founded  on  a  principle  of  justice.  We 
must  repeat  that  present  distribution  is  based  on  the  law  of  supply 
and  demand,  which  of  itself  is  neither  moral  nor  immoral,  and 
which  is  as  perfectly  indifferent  to  all  our  thoughts  of  justice  as 
the  sun  which  shineth  on  the  just  as  on  the  unjust.  That  is  why 
there  is  a  social  question.  Men  refuse  to  accept  a  social  order 
which  is  independent  of  all  ideas  of  justice,  and  their  efforts  will 
ever  be  directed  to  putting  things  as  they  are  in  conformity  with 
things  as  they  ought  to  be. 

II.    The  Inequality  of  Wealth. 

To  the  general  public  the  clearest  and  most  appalling  fact  in 
the  distribution  of  wealth  is  its  inequality. 

We  may  even  say  that  men  daily  find  this  inequality  the  more 
unbearable,  in  proportion  to  the  successive  breaking  down  of  all 
the  other  inequalities  which  used  to  separate  them  one  from 
the  other.  Modern  laws  have  realized  civil  equality;  universal 
suffrage  has  given  political  equality;  the  growing  diffusion  of 
education  is  tending  to  introduce  the  reign  of  a  virtual  intellectual 
equality.  But  the  inequality  of  wealth  still  remains  :  formerly  it 
was  hidden,  as  it  were,  behind  even  deeper  inequalities ;  now, 
however,  it  is  seen  in  the  foreground  of  our  democratic  societies, 
and  against  it  dash  the  waves  of  public  wrath. 

However,  if  inequality  were  the  only  vice  to  be  found  in  the 


402  PRINCIPLES    OF    POLITICAL    ECONOMV, 

present  distribution  of  wealth,  the  evil  would  not  be  so  very  great ; 
in  reality,  it  would  not  be  an  evil  at  all. 

If  there  be  any  fact  which  possesses  in  a  high  degree  the  char- 
acteristics of  a  natural  fact,  it  surely  is  inequality.  Science  does 
not  authorize  us  to  beheve  that  we  shall  ever  succeed  in  effecting 
its  disappearance,  and  certainly  does  not  advise  us  to  make  the 
attempt.  On  the  contrary,  it  assures  us  by  the  mouth  of  its  most 
competent,  or  at  any  rate  its  best  accredited,  representatives  that 
inequality  is  as  indispensable  for  the  development  of  the  human 
species  as  it  is  for  that  of  all  other  species,  and  that  it  is  the  sine 
qua  lion  of  progress.  Thus  Professor  Schmidt  declares  that  "Dar- 
winism is  the  scientific  basis  of  inequality  "  ;  Haeckel  says  that 
"  in  the  life  of  humanity,  as  in  that  of  plants  and  of  animals,  only 
a  small  minority  ever  succeeds  in  livdng  and  in  developing"  ;  and 
Herbert  Spencer  asserts  that  "  all  arrangements  which  tend  to  do 
away  with  any  difference  between  the  higher  and  the  lower  are 
diametrically  opposed  to  the  stages  of  organization  and  to  the 
coming  of  a  higher  life."  ^ 

Even  if  we  confine  ourselves  to  purely  economic  ground,  we  are 
told  that  the  inequality  of  wealth  is  an  excellent,  perhaps  the  only, 
stimulus  to  production ;  for  from  the  foot  to  the  top  of  the  social 
scale  it  keeps  all  classes  moving  with  the  prospect  of  some  kind 
of  advancement ;  it  alone  can  develop  individual  initiative  to  its 
full  extent  by  concentrating  powerful  amounts  of  capital  in  the 
hands  of  a  few  able  persons ;  finally,  it  alone  can  give  fruitful 
variety  to  men's  labors  by  means  of  the  unbounded  gamut  of 
wants  and  desires  that  it  establishes  between  them.  It  is  only  in 
the  wealthy  classes  that  a  new  want  can  be  stirred  to  take  its  rise, 
and  thence  by  the  force  of  imitation  it  is  gradually  spread  right 
down  to  the  lowest  strata  of  society. 

All  this  is  true  enough,  but  the  question  remains  unsolved,  for 
there  is  inequality  and  inequality.    There  is  a  beneficent  inequality 

^  The  German  Socialists  have  clearly  recoj:i;ni7,C(l  the  need  of  coming  to  terms 
with  Darwinism.  See,  for  example,  a  series  of  papers  on  the  sul)jcct  in  the 
AV«^  Zeie  for  iSyo. — J.  B. 


DISTRIBUTION.  4O3 

which  stimulates  the  progress  of  human  society  and  prepares  the 
way  for  a  higher  hfe  for  all ;  there  is  also  a  baneful  inequality 
which  paralyzes  the  development  of  the  social  organism  by  allow- 
ing a  class  of  parasites  to  live  at  its  expense.  The  inequalities 
which  characterize  modern  society  must  now  be  assigned  to  one 
or  other  of  the  above  classes. 

Three  characteristics  are  necessary  for  inequalities  to  produce 
the  salutary  effects  which  are  expected  from  them  :  they  ought 
to  be  in  a  certain  relation  to  the  services  rendered ;  they  ought 
not  to  be  excessive  ;  they  ought  not  to  be  permanent. 

For  when  the  inequality  of  fortune  bears  no  ratio  to  the 
inequality  of  services  rendered,  when,  instead  of  springing  from 
natural  causes,  it  arises  from  artificial  causes  such  as  past  con- 
quests or  laws  which  have  long  been  oppressive,  it  keeps  up  in 
the  social  organism  an  irritation  and  a  state  of  discomfort  which 
the  flight  of  time  does  not  cure,  but  renders  more  acute. 

When  the  inequality  becomes  permanent  and,  as  it  were,  pre- 
ordained, when  it  creates  classes,  when  the  children  of  the  rich 
are  destined  to  be  always  rich  and  the  offspring  of  the  poor  always 
poor,  then  its  results  are  injurious  even  as  regards  productive 
activity.  It  discourages  those  who  are  at  the  bottom  of  the 
ladder,  for  they  are  deprived  of  all  chance  of  ever  climbing  it ; 
those  who  are  at  the  top  it  lulls  to  sleep  in  the  security  of  an 
acquired  position.  Those  who  are  too  poor  are  prevented  from 
laboring,  because  they  are  no  longer  able  to  produce ;  those  who 
are  too  rich  do  not  work,  because  they  have  no  longer  any  desire 
to  do  so.  Thus  are  engendered  those  two  evils  which  have  for 
years  afilicted  society ;  their  names  are  idleness  and  pauperism, 
and  both  alike  end  in  unproductive  consumption.  In  thus  per- 
petuating these  two  classes  of  parasites,  the  one  at  the  top,  the 
other  at  the  bottom,  of  the  social  scale,  extreme  inequality  goes 
diametrically  against  the  natural  selection  which  is  so  much 
extolled  to  us. 

When  the  inequality  of  fortunes  becomes  excessive,  in  its  train 
follow  a  whole  series  of  inequalities  which  revolt  the  public  mind 


404  PRINCIPLES    OF    POLITICAL    ECONOMY, 

and  disturb  the  public  well-being ;  when  the  poor  man  is  very 
poor  he  is  necessarily  a  prey  to  ignorance,  vice,  crime,  disease, 
and  premature  death.  Be  it  remarked,  moreover,  that  it  is  the 
smallest  inequalities  which  stir  men's  minds  the  most  keenly ;  great 
inequalities  may  excite  envy,  but  the  hopelessness  of  overcoming 
them  negatives  all  emulation.  The  small  peasant  proprietor  will 
work  hard  to  make  his  plot  as  large  and  as  compact  as  his  neigh- 
bor's ;  but  he  will  not  labor  a  moment  the  more  from  seeing  the 
squire's  seat,  for  he  knows  that  he  will  never  own  it. 

Almost  all  the  above  grievous  features  still  exist  in  modern 
society,  though  they  are  less  marked  than  they  were  in  ancient  times. 

The  inequalities  which  are  seen  in  the  distribution  of  wealth 
greatly  exceed  in  their  proportions  the  inequalities  which  result 
from  nature.  The  differences  which  may  exist  between  the 
height  of  a  giant  and  of  a  dwarf,  between  the  muscular  power  of 
the  strongest  and  of  the  weakest  man,  probably  even  between  the 
intellectual  capacity  of  a  man  of  genius  and  of  a  person  of  limited 
intelligence,  if  they  could  be  measured  by  some  dynamometer,  — 
all  these  would  be  seen  to  be  but  trifling  when  compared  with  the 
enormous  difference  that  may  exist  between  the  poor  man  and 
the  rich  man.  Most  rural  families  in  a  country  like  France  (which 
is  one  of  those  in  which  easy  circumstances  are  the  most  common) 
have  to  be  content  with  an  income  less  than  ;^40  ;  but  there  are 
fortunes  in  the  world  that  can  only  be  reckoned  by  millions. 
William  Vanderbilt,  the  American,  left  a  fortune  which  was  estimated 
to  be  rather  more  than  ^40,000,000,  Thus  that  single  man  had 
an  income  equal  to  that  on  which  40,000  or  50,000  families  might 
live.  Now  no  one,  not  even  Vanderbilt  himself,  would  have  dared 
to  assert  that  his  intelligence  or  his  capacities  were  50,000  times 
greater  than  those  of  the  average  of  his  contemporaries.  Still  he 
was  in  a  certain  degree  a  self-made  man ;  whereas  in  England  a 
few  hundred  peers  held  as  their  own,  and  have  handed  down  from 
father  to  son  for  centuries,  about  half  the  land  in  England. 

When  it  has  passed  certain  limits,  this  inequality  of  fortune 
brings  with  it  the  other  inecjualitics  of  which  we  have  spoken. 


DISTRIBUTION.  4O5 

Let  us  not  talk  of  vice  or  ignorance,  though  they  may,  in  large  meas- 
ure, be  regarded  as  the  fatal  consequences  of  misery ;  let  us  only 
look  at  that  possession  par  excellence  to  which  it  seems  that  all 
men  should  have  equal  rights.  I  mean  "life."  Alas  !  That,  too, 
is  most  unequally  meted  out  to  the  rich  and  to  the  poor ;  and 
statistics  show  that  the  average  duration  of  life  among  the'  wealthy 
classes  is  twice  as  long  as  it  is  among  the  poor.  Thus,  by  a  cruel 
irony  of  fate,  the  smaller  the  share  of  wealth  that  falls  to  a  man's 
lot,  the  heavier  is  the  tribute  that  he  has  to  pay  to  disease  and 
death.  Numerous  statistical  calculations  show  that  in  England 
the  average  duration  of  Hfe  among  the  wealthy  classes  is  from  55 
to  56  years;  whilst  for  the  working  classes  it  falls  to  28  years,  or 
even  lower.  According  to  M.  Loua  {^Economiste  Fra^igais,  1882, 
I,  page  179),  the  following  would  be  the  figures  of  the  annual  mor- 
tality in  Paris :  — 

The  rich  and  well-to-do  classes      ,     156  out  of  every  10,000  inhabitants. 
77^1?  poor 285  "  10,000  " 

M.  Leroy  Beaulieu,  in  his  work  on  the  Distnbutio7i  of  Wealth 
(in  the  chapter  entitled  "  Sisyphism  and  Pauperism")  tries  to 
establish  a  kind  of  compensation  between  the  evils  that  result 
from  indigence  and  those  that  proceed  from  disease  and  moral 
sufferings.  He  says  :  "  What  is  the  number  of  the  poor  when 
compared  with  that  of  the  human  beings  who  are  afflicted  with 
infirmities,  with  incurable  or  constitutional  diseases,  such  as  scrof- 
ula and  phthisis  ?  In  particular,  what  is  it  when  compared  with 
the  still  larger  number  of  men  who  are  tortured  with  poignant 
moral  sufferings?  No  doubt  indigence  is  an  ill;  but  to  the 
thoughtful  mind  it  is  one  of  the  most  benign  and  least  spread 
evils  that  have  ever  afflicted  civilized  societies."  This  eminent 
economist  forgets  that  poverty  of  itself  is  a  cause  of  most  poignant 
moral  sufferings,  and  a  most  active  cause  of  scrofula  and  phthisis ; 
and  that  therefore  Fortune  has  not  put  in  the  two  opposite  scales 
of  the  balance  the  evils  that  afflict  men,  but  appears,  rather,  to 
have  heaped  them  together  in  one  and  the  same  scale. 


406  PRI^-CIPLES    OF    POLITICAL    ECONOMY. 

In  fine,  the  real  complaint  that  can  be  urged  against  the  dis- 
tribution of  wealth  is  not  so  much  its  inecjuality  as  our  inability 
to  perceive  the  reasons  for  this  inequality.  It  is  by  no  means  pro- 
portional to  the  labor  expended ;  on  the  contrary,  according  to 
John  Stuart  Mill's  bitter  remark,  the  scale  of  remuneration  appears 
to  descend  further  and  further,  the  more  laborious  the  work  be- 
comes, until  finally  it  reaches  a  point  where  the  most  severe  toil 
scarcely  suffices  for  the  necessities  of  existence.  Still  less  does  it 
seem  to  be  proportional  to  men's  merits  or  virtues.  The  antithesis 
between  the  man  who  is  poor  but  honest,  and  the  scoundrel  who 
is  fortunate  and  wealthy,  is  a  commonplace  which  is  as  old  as  the 
world,  but  it  never  fails  to  be  true  in  the  present. 

III.     Why  the  Problem  of  Distribution  is  so  hard  to  solve. 

If  wealth  were  in  excess,  it  is  obvious  that  the  question  of  dis- 
tribution would  never  arise,  for  then  we  might  draw  at  our  own 
free  will  from  a  fount  that  would  never  be  exhausted.  Do  men 
ever  wish  to  make  a  fair  distribution  of  spring  water?  Yes,  but 
only  on  the  oases  of  the  Sahara.  But  where  wealth  is  deficient, 
the  question  of  distribution  does  arise,  and  the  smaller  the  amount 
to  be  divided,  the  more  acute  is  the  controversy.  The  survivors 
on  the  raft  of  the  ship  Medusa  fought  with  knives  for  a  crust  of 
bread. 

Though  we  are  not  exactly  in  that  position,  we  are  nearer  to 
the  second  than  to  the  first  of  our  hypotheses.  Contrary  to  the 
popular  belief,  the  amount  of  wealth  produced  is  small  and  insuf- 
ficient, even  in  the  professedly  wealthy  countries.  Hence  the 
acuteness  of  the  problem  of  distribution  and  the  difficulty  of 
effecting  a  solution  ;  for  clearly  the  most  skilful  distribution  in  the 
world  will  never  succeed  in  allotting  large  shares  when  the  whole 
mass  to  be  divided  is  small.  It  is  easy  to  give  an  irrefutable 
proof  of  this.  The  sum  total  of  the  wealth  that  exists  in  a  country 
such  as  France  is  reckoned  to  be  ^8,000,000,000,  though  some 
statisticians  put  it  at  ^8,800,000,000,  or  even  ^9,600,000,000, 


DISTRIBUTION,  4O7 

whilst  others,  whose  calculations  appear  to  be  the  most  reliable, 
reduce  the  total  to  ^7,200,000,000  or  even  ^{^6,400,000,000. 
Let  us  take  the  first-mentioned  figure  and  divide  it  by  the  number 
that  represents  the  population  of  France,  or  38,000,000 ;  the 
quotient  is  a  little  over  ^210.  If  we  were  to  suppose  then  that 
all  the  existing  wealth  were  equally  divided  between  all  French- 
men, each  family  (taking  four  persons  to  a  family)  would  receive 
as  their  share  a  capital  of  about  ;^8oo,  half  of  which  would  be  in 
land.  Is  it  urged  that  that  would  in  any  case  be  better  than  the 
present  situation  ?  We  must  certainly  recognize  that  it  would  be 
a  very  modest  position  for  every  one,  and  that  it  would  be  far 
more  hke  poverty  than  wealth.  If  the  same  calculation  were 
applied  to  England  or  the  United  States,  virtually  analogous 
results  would  be  arrived  at,  but  in  every  other  country  they  would 
be  far  lower.  Thus  the  total  wealth  of  Italy  is  estimated  to  be 
only  ^2,160,000,000,  and  that  would  give  a  quotient  of  ^^o  per 
head,  or  about  ^280  for  a  family,  and  more  than  half  of  this 
would  be  in  land.  (Pantaleoni,  Giornale  degli  Economisti, 
August,  1890.) 

We  may  arrive  at  the  same  conclusion  in  another  way  by  con- 
sidering how  few  the  rich  are,  even  in  the  so-called  wealthy 
countries.  They  never  constitute  more  than  an  infinitesimal  pro- 
portion of  the  population.  According  to  M.  Paul  Leroy-BeauHeu, 
the  number  of  miUionnaires  in  France  is  20,000  at  the  very 
outside,  *and  that  estimate  appears  to  be  confirmed  by  various 
observations  made  in  those  countries  in  which  the  establishment 
of  an  income  tax  allows  of  the  drawing  up  of  far  more  exact 
statistics.  Thus  in  Prussia,  in  1 890,  out  of  a  population  of  nearly 
29,000,000,  there  were  only  232,477  families  that  had  an  income 
of  more  than  3000  marks,  and  merely  1260  families  that  had  an 
income  larger  than  54,000  marks. 

In  Paris,  in  1884,  there  were  reckoned  to  be  758,981  dwelling- 
houses,  and  the  rental  of  only  6672  of  these  was  above  ;j^240 ; 
though  the  official  valuation  is  generally  about  a  third  less  than 
the  real  value.     Nevertheless,  as  a  wealthy  family  in  Paris  never 


408  PRINCIPLES    OF    POLITICAL    ECONOMY. 

spends  less  than  ;;^200  or  ;j^300  on  its  rent,  we  can  thus  appre- 
ciate the  small  number  of  the  rich,  even  in  that  great  city  where 
the  wealthy  of  all  parts  of  the  world  are  wont  to  congregate. 

All  this  shows  the  magnitude  of  the  mistake  made  by  the  public, 
and  by  the  greater  part  of  the  socialists,  in  imagining  that  to 
solve  the  social  question  it  would  be  enough  to  cut  off  a  portion 
of  the  share  of  the  rich  and  increase  the  share  of  the  poor  by  such 
parings.  Even  were  it  possible  to  carry  out  this  crude  and  child- 
ish plan,  it  would  only  increase  the  income  of  the  immense  major- 
ity in  a  ludicrously  small  proportion  ;  in  an  exactly  similar  way,  if  it 
were  possible  to  distribute  uniformly  over  the  whole  area  of  French 
territory  the  mass  of  all  its  mountains,  Mont  Blanc  included,  the 
surface  of  the  soil  would  be  raised  only  by  a  few  feet. 

People  fail  to  see  that  the  fact  of  there  being  so  many  men  in 
the  world  who  have  so  small  a  share  of  wealth  does  not  spring 
merely  from  the  unfair  distribution  of  this  wealth  ;  the  chief  reason 
is  that  there  is  not  enough  of  it.  The  gravity  of  the  problem  does 
not  arise  so  much  from  the  unequal  distribution  of  goods  —  for 
that  might  be  fairly  easily  overcome  —  as  from  their  insufficiency. 

The  enunciation  of  the  fact  leads  to  this  :  whatever  mode  of 
distribution  may  be  proposed,  it  should  always  be  subordinated 
to  the  mode  of  production  ;  however  conformable  the  plan  might 
otherwise  be  to  the  ideal  of  distributive  justice,  it  should  be  sternly 
rejected  if  it  might  lead  to  a  diminution  of  production.  Other- 
wise the  attempt  at  cure  would  aggregate  the  disease.  The  sine 
qua  non  is,  "not  to  discourage  productive  activity."  On  this 
reef  we  shall  find  that  all  socialist  systems  founder. 

The  solution  should  comply  with  another  condition  which  is 
partly  bound  up  with  the  foregoing  :  "  individual  liberty  must  not 
be  destroyed."  Even  admitting  that  it  is  possible  to  discover  an 
ideal  formula  of  distributive  justice,  should  we  not  then  require 
some  recognized  authority  to  assign  each  man  his  share,  similar 
to  the  mother  who  cuts  each  child  its  respective  piece  of  cake? 
Would  not  regulation  in  distribution  necessarily  entail  regulation 
in  production  and  in   labor?      Could   the   prescribed   authority 


DISTRIBUTION.  4O9 

count  each  man's  sheaves  at  the  harvest-home  and  still  leave  him 
free  to  sow  and  plough  as  he  chose  ?  That  is  scarcely  probable  ; 
for,  just  as  the  mode  of  distribution  is  largely  determined  by  the 
mode  of  production,  so  too  the  latter  reacts  on  the  former ;  in 
fact,  they  are  inseparable.  We  should  therefore  require  a  self- 
acting  and  literally  automatic  mode  of  distribution,  which  would 
not  need  the  constant  interference  of  a  distributive  agency  —  such 
as  the  mode  now  in  vogue,  which  we  have  briefly  described.  This 
second  condition  does  not  seem  to  be  much  more  easy  than  the 
first  one.  Let  us  now  turn  to  the  solutions  proposed  by  the 
various  schools  of  socialists. 


CHAPTER  II. 
THE  SOCIALIST  SOLUTION. 

I.     Communism. 

Let  us  suppose,  after  the  fashion  of  social  reformers  of  other 
times,  that  we  are  transported  into  some  new  world,  into  some 
kingdom  of  Utopia ;  let  us  there  make  a  clean  sweep  of  every- 
thing that  might  interfere  with  us,  —  traditions,  customs,  or  laws, — 
and  then  try  to  discover  some  principle  of  distributive  justice  that 
might  serve  us  as  a  rule  for  the  distribution  of  wealth. 

But  it  may  be  urged,  to  begin  with,  what  is  the  use  of  dividing 
at  all  ?  All  sharing  will  cause  further  inequalities ;  why  not  then 
leave  everything  in  common  between  the  members  of  society  just 
as  between  the  members  of  one  family  ?  This  is  coinfuutnsm,  the 
simplest  and  the  most  ancient  of  all  the  systems  that  have  been 
proposed. 

Very  many  authors  have  conceived  more  or  less  communistic 
theories ;  to  begin  with,  Plato  in  the  Republic,  or  F^nclon  in  his 
Tekmachus ;  but  the  only  ones  who  can  be  regarded  as  the 
leaders  of  a  school  are  Gracchus  Baboeuf,  Robert  Owen,  and 
Cabet. 

Baboeuf,  who  took  the  name  of  Gracchus  because  he  believed 
that  the  tribune  who  obtained  the  passage  of  the  Agrarian  Laws 
was  the  inventor  of  equal  sharing,  was  the  leader  of  the  conspiracy 
of  the  "  Equals  "  under  the  Directory,  was  condemned  to  death, 
and  was  executed  in  1797.  He  had  set  forth  a  regular  plan  of 
social  organization  in  a  programme  which  began  with  the  words, 
"  Nature  has  given  each  man  an  equal  right  to  all  things."  But 
this  movement  was  revolutionary  rather  than  socialistic. 

On  the  other  hand,  Owen,  who  was  born  in  Wales  in  1771 
410 


DISTRIBUTION.  4II 

and  died  in  1857,  was  a  great  philanthropist,  and  at  the  beginning 
of  this  century  paved  the  way,  at  his  factory  in  New  Lanark,  for 
all  the  great  philanthropic  institutions  of  our  own  time ;  namely, 
limitation  of  the  hours  of  labor,  prohibition  of  child  labor,  work- 
men's co-operative  societies,  savings  banks,  provision  stores,  and 
even  secular  schools.  But  not  content  with  this,  he  formed  dreams 
for  the  organization  of  communist  societies,  and  tried  to  found 
them  in  the  United  States  in  the  year  1826  under  the  name  of 
New  Harmony.  After  a  few  years  of  success,  the  project  fell 
through. 

Cabet,  the  author  of  Icaria,  one  of  those  numerous  romances 
which  have  imitated  Sir  Thomas  More's  Utopia,  started  in  1848 
the  society  of  Icarians,  which  still  subsists  in  the  State  of  Iowa. 
But  it  has  been  grievously  troubled  by  intestinal  quarrels ;  a  few 
years  ago  it  split  up  into  two  parts,  and  now  it  has  only  a  very 
small  number  of  members,  seventy-five  of  whom  belong  to  "  Young 
Icaria."     Moreover,  its  financial  position  is  not  of  the  very  best. 

Fourier,  for  his  part,  is  wrongly  classed  among  real  communists, 
though  he  is  generally  reckoned  as  such.  He  was  only  a  com- 
munist in  the  matters  of  consumption  and  production,  and  not  so 
in  the  least  as  regards  the  distribution  of  wealth.  To  his  mind 
life  in  common  in  the  phalanstery  was  only  a  means  of  organizing 
production  and  consumption  under  more  economic  conditions, 
and  its  aim  was  certainly  not  to  establish  equality  among  men. 
In  fact,  as  Fourier  expressly  said,  it  ought  to  leave  untouched  not 
only  the  inequalities  that  result  from  labor  and  talent,  but  those, 
too,  that  proceed  from  unequal  returns  to  capital.  Reference  may 
be  made  to  my  little  book  on  Charles  Fourier. 

To  return  :  whatever  may  be  said  of  it,  communism  is  not  a 
purely  fanciful  organization,  for  it  has  certainly  existed,  if  not  at 
the  beginning  of  all  human  societies,  as  has  been  too  positively 
asserted,  at  any  rate  at  the  foundation  of  a  great  number  of  them. 
(See  Sir  Henry  Maine's  Village  Com77iunities  in  the  East  and 
West ;  M.  VioUet's  Le  caractere  collectif  dcs  premieres  pro- 
prietes   itnmobilieres,   and  M.   de    Laveleye's    La   propriete    et 


412  PRINCIPLES    OF    POLITICAL    ECONOMY. 

sfs  formes  primitives^  Of  the  many  remains  of  this  primitive 
condition  we  may  instance  that  institution  of  i)ubnc  symposia  which 
was  so  widespread  in  the  cities  of  antiquity. 

Even  to-day,  not  to  mention  Roman  CathoHc  bodies,  the  United 
States  contain  somewhat  numerous  and  well-marked  examples  of 
societies  which  are  altogether  communistic,  and  some  of  these 
have  already  lasted  for  nearly  a  century.  If  their  results  have  not 
been  very  great,  their  very  existence  has  shown  that  community 
of  goods  is  a  social  organization  which  is  realizable  under  certain 
conditions.  Reference  may  be  made  to  Nordhoff,  Coynjmmistic 
Societies,  and  Richard  Ely,  The  Labor  Movefnent  in  America. 
There  are  between  70  and  80  of  these  societies,  with  a  member- 
ship of  from  6000  to  7000,  and  all  their  property  reckoned  together 
gives  a  total  which  is  by  no  means  small,  say  ^5,000,000  or 
;^6,ooo,ooo.  That  would  come  to  about  ^800  per  head,  a  pro- 
portion which  is  far  larger  than  the  average  share  of  wealth  which 
a  similar  calculation  would  give  for  the  members  of  the  most 
wealthy  of  our  civilized  societies.     (See  above,  page  407.) 

Although  the  experiment  has  only  been  made  on  a  small  scale, 
yet  it  shows  in  particular  that  the  communistic  system  is  not 
absolutely  incompatible  with  labor  and  production,  as  has  been 
somewhat  too  hastily  asserted.  The  members  of  these  societies 
are  usually  men  of  the  average  amount  of  industry.  No  doubt 
they  do  not  feel  a  stimulus  equal  to  that  given  by  private  property, 
for  each  man  works  and  produces  on  the  behalf  of  all,  instead  of 
working  and  producing  only  on  his  own  account ;  but,  when  this 
objection  is  urged  against  the  communistic  system,  it  is  usually 
forgotten  that  in  our  modern  societies  this  very  stimulus  is  lacking 
for  the  great  majority  of  men ;  namely,  for  all  those  who,  in  their 
capacity  of  receivers  of  wages,  have  to  work  only  on  the  behalf 
of  others.  Now  there  is  reason  to  believe  that  a  member,  who 
works  for  a  society  of  which  he  himself  forms  a  part,  will  put  more 
zest  into  his  work  than  the  wage-earner,  who  only  labors  for  an 
employer.  Thus  the  argument  is  a  double-edged  weapon  and 
cuts  those  who  use  it. 


DISTRIBUTION,  413 

But  the  real  cause  of  the  discredit  into  which  communistic 
societies  have  fallen  is  the  fact  that  the  conditions,  which  are  indis- 
pensable for  their  success,  are  absolutely  incompatible  with  the 
tendencies  of  modern  societies.  Proof  of  this  can  be  afforded  by 
a  consideration  of  these  conditions,  such  as  may  be  observed  in 
the  few  communistic  societies  which  have  prospered. 

Firstly.  Very  small  societies  are  required,  whose  members 
shall  not  be  more  than  a  few  hundreds  or  a  thousand.  Com- 
munists themselves  have  understood  this  well  enough,  for  Fourier 
fixed  the  maximum  number  of  persons  in  his  phalanstery  at  1500, 
and  Owen's  figure  was  between  500  and  2000.  Small  numbers 
obtain  in  those  societies  that  are  observable  in  the  United  States. 
The  most  extensive  of  all,  the  society  of  Shakers,  is  subdivided 
into  several  communities,  and  the  largest  of  these,  that  of  Mount 
Lebanon,  had  rather  less  than  400  members  in  1876  (see  Nordhoff, 
Communistic  Societies) . 

The  reason  for  this  is  quite  apparent ;  as  the  number  of  mem- 
bers increases,  the  interest  of  each  member  in  the  success  of  the 
society  diminishes.  When  the  society  is  very  small,  each  man  can 
gain  in  a  certain  measure  by  his  own  personal  efforts  ;  but  in  a  com- 
munistic society  which  comprised  all  Frenchmen,  each  man  would 
only  be  interested  to  the  extent  of  one  thirty-eight-millionth,  and 
that  fraction  is  far  too  minute  to  excite  any  one's  zeal. 

It  would  be  useless,  as  some  communists  propose,  to  try  to 
turn  the  difficulty  by  only  establishing  the  community  in  the  heart 
of  the  local  parish,  and  by  dividing  a  country  like  France  into 
36,000  of  these.  Nothing  would  be  gained  by  that,  for  there 
would  be  rich  districts  and  poor  districts,  and  inequality  of  per- 
sons would  thus  be  replaced  by  inequality  of  groups. 

Secondly.  We  should  require  societies  subjected  to  the  severest 
discipline.  For  it  is  obvious  that  the  equality  which  such  associa- 
tions demand  is  incompatible  with  all  encroachments  on  the  part 
of  particular  individuals  with  a  view  to  consuming  more  than  their 
share,  and  with  all  desire  of  emancipation  so  as  to  obtain  relief 
from  the  task  allotted  them.    The  institutions  where  life  in  common 


414  PRINCIPLES    OF    POLITICAL    ECONOMY. 

reigns  —  convents,  barracks,  and  public  boarding-schools  —  are 
those  in  which  obedience  is  obligatory.  The  history  of  the  Repub- 
lic of  Icaria  offers  us  a  wealth  of  instruction  in  this  matter.  We 
see  the  neophytes  ceaselessly  striving  to  shake  off  a  rule  which  they 
found  to  be  unbearable,  and  Cabet  struggling  in  vain  to  obtain 
dictatorial  power  on  behalf  of  the  community.  The  comparative 
lack  of  success  of  this  society  was  precisely  due  to  the  lax  disci- 
pline observed  therein. 

We  must  also  remark  that  in  almost  all  cases  religious  feeling, 
pushed  to  the  verge  of  fanaticism,  has  alone  been  strong  enough 
to  preserve  in  these  communities  that  discipline  which  is  indis- 
pensable for  their  existence.  All  the  communistic  societies  in  the 
United  States,  the  Icarians  alone  excepted,  are  religious  sects  ; 
and  the  republics  formed  by  the  Jesuits  in  Paraguay  constituted  a 
true  theocracy. 

But  nowadays  the  minds  of  men  are  not  at  all  inclined  to  accept 
the  yoke  of  any  authority  whatsoever,  least  of  all  a  religious  yoke  ; 
when  such  a  feeling  is  current,  every  system  of  communism  seems 
doomed  to  fail.  However,  with  a  lack  of  logical  consistency  which 
is  really  amusing,  the  only  socialist  school  which  still  preaches 
communism  is  the  anarchist  section.  Still,  this  contradiction  may 
be  partly  explained  when  we  add,  that  the  mode  by  which  the 
anarchists  wish  to  reconstruct  society  as  a  whole  is  the  formation 
of  a  multitude  of  communistic  bodies,  which  shall  be  free  and 
autonomous. 

IL    Collectivism. 

Collectivism  is  a  milder  form  of  communism.  It  proposes  to 
leave  undivided  only  the  instruments  of  production,  i.e.  land  and 
capital,  and  to  divide  the  products  according  to  certain  rules  that 
we  shall  study  in  the  next  chapter. 

Unlike  the  other  social  schools,  collectivism  cannot  altogether 
be  connected  with  the  name  of  any  particular  man.'    Forty  or  fifty 

^  In  the  Revue  d^ Eionomie politique  for  January,  1S9I,  Professor  Gide  gives 
Cesar  dc  Pacpc  the  credit  of  inventing  the  name  Colleetivisni.  — J.  B. 


DISTRIBUTION.  415 

years  ago  CoHns  in  Belgium,  and  Pecqueur  and  Vidal  in  France, 
first  laid  down  that  distinction  between  instruments  of  production 
and  objects  of  consumption  which  is  the  characteristic  feature  of 
the  system.  But  it  received  all  the  weapons  with  which  it  attacks 
the  present  organization  of  society  from  Ferdinand  Lassalle,  and 
even  more  from  Karl  Marx  (by  the  publication,  in  1867,  of  his 
famous  book  on  Capital)  :  both  of  these,  by  the  way,  were  Ger- 
mans and  Jews.  Up  to  the  present,  however,  the  nature  of  collec- 
tivism has  been  negative  and  critical  rather  than  positive  and 
organic.  Its  object  has  been  to  demolish  rather  than  to  construct, 
and  consequently  we  shall  have  to  more  particularly  examine  this 
system  when  we  study  the  various  social  institutions  {e.g.  profits, 
dividends,  wages,  etc.).  However,  its  plans  for  a  future  society 
have  been  set  forth  in  Mr.  Gronlund's  book,  entitled  the  Co-oper- 
ative Commomvealth. 

Collectivism  has  received  the  adherence  of  all  present-day 
socialists,  with  the  exception  of  the  anarchists,  who  have  remained 
constant  to  pure  communism.  It  does  not  profess  to  be  a  plan 
for  constructing  a  new  society,  based  upon  any  a  priori  principle 
of  justice.  Its  object,  whether  well-grounded  or  not,  is  to  repre- 
sent the  state  of  affairs  towards  which  modern  societies  are  tend- 
ing, being  urged  on,  whether  they  will  or  no,  by  the  laws  of  a 
necessary  evolution.  The  partisans  of  collectivism  assert  that,  in 
consequence  of  the  development  of  large  industry,  wholesale  trade, 
and  the  holding  of  extensive  estates,  in  all  our  societies  individual 
production  is  disappearing  and  is  being  replaced  by  collective  pro- 
duction. Now,  since  all  the  instruments  of  production,  mines, 
railways,  ships,  banks,  and  machinery,  are  daily  passing  from  pri- 
vate owners  into  the  hands  of  great  limited  companies,  or  some- 
times of  the  State,  we  ought  soon  to  witness  the  last  stage  of  an 
evolution  which  will  definitively  divert  all  this  class  of  wealth 
from  the  sphere  of  private  property  and  will  place  it  in  the  collec- 
tive estate  of  society  at  large. 

They  hope  that  this  nationalizing  of  all  active  \\t^\\\  (I  mean  by 
that,  wealth  which  is  employed  in  production)  will  be  enough  to 
put  to  flight  most  of  the  vices  of  our  present  social  organization. 


4l6  PRINCIPLES    OF    POLITICAL   ECONOMY. 

In  their  opinion  it  would  cause  the  disappearance  of  the  ex- 
treme inequality  by  which  we  are  afflicted ;  for  the  only  cause  of 
these  inequalities  is  the  accumulation  of  capital  or  of  land  in  the 
hands  of  certain  classes.  This  capital  grows  as  speedily  as  a  roll- 
ing snowball,  through  the  laws  of  inherited  property,  by  being  lent 
out  at  interest,  and  by  being  made  to  yield  returns.  This  latter 
process,  according  to  Karl  Marx's  theory,  is  merely  a  mode  of 
making  profit  out  of  other  people's  work.  But,  as  soon  as  private 
individuals  were  inhibited  from  holding  capital,  this  monopoly 
would  have  to  vanish  along  with  all  its  consequences. 

Idleness  would  have  to  go;  for  as  soon  as  no  one  could  hold 
land  or  capital  as  his  own,  there  would  clearly  be  no  longer  any 
room  for  a  class  of  persons  of  independent  income  who  live  on 
their  investments  or  on  their  rents. 

Pauperism  would  cease  to  exist ;  for  society  at  large,  as  soon  as 
it  assumed  the  possession  of  all  land  and  all  capital,  would  be 
bound  to  provide  work  for  all  those  who  were  able  to  work,  and 
to  guarantee  at  least  the  existence  of  those  who  were  incapable 
of  working. 

In  another  way,  as  collectivism  retains  private  property  in  arti- 
cles of  consumption  together  with  the  right  of  their  free  disi)osal, 
it  seems  to  promise  an  avoidance  of  the  dangers  of  communism 
and  a  complete  assurance  of  individual  liberty. 

If  we  were  to  enter  on  a  critical  study  of  this  system,  it  would 
demand  long  digressions.  We  must  therefore  refer  the  reader  to 
M.  Leroy-Beaulieu's  book  on  Le  CollecHvismc,  and  to  the  numer- 
ous passages  in  which  we  speak  of  collectivist  theories. 

We  shall  here  confine  ourselves  to  observing  that  the  distinction 
between  instruments  of  production  and  articles  of  consumption, 
upon  which  the  whole  system  of  collectivism  has  been  built, 
appears  to  be  a  very  fragile  foundation. 

In  the  first  place,  this  distinction  is  valueless  from  a  moral  point 
of  view.  The  instrument  of  production,  whether  it  be  called  capi- 
tal or  not,  may  be  the  product  of  labor  just  as  well  as  any  article 
of  consumption,  and  may  consequently  fall  under  the  category  of 


DISTRIBUTION.  417 

legitimate  property.  Common  sense  refuses  to  accept  the  notion 
that  although  the  right  of  private  prop'^rty  can  be  legitimately 
exercised  on  a  carriage  or  coach,  because  that  is  an  article  of  con- 
sumption, the  smack  and  the  nets  of  a  fisherman  may  not  fall  under 
that  right  because  they  are  instruments  of  production.  True 
enough,  coUectivists  may  reply,  and  indeed  have  already  replied, 
that  they  do  not  propose  to  confiscate  capital  which  is  merely 
used  as  an  instrument  of  individual  labor ;  they  confine  their  pro- 
posals to  capital  which  enables  its  possessor's  to  make  other  men 
work  on  their  account ;  e.g.  factories,  mines,  and  large  farms.  But 
then  the  distinction  only  comes  to  this,  that  large  capital,  and  not 
small  capital,  will  be  confiscated ;  hence  it  loses  all  scientific  value 
and  becomes  nothing  more  than  a  commonplace  system  of  leveUing. 

Nor  is  the  distinction  more  acceptable  from  a  practical  point 
of  view.  For  we  have  seen  that  any  articles  of  wealth  may, 
on  account  of  their  different  properties,  be  reckoned  as  capital 
as  well  as  be  classed  among  articles  of  consumption,  and  that 
the  quality  of  being  capital  depends  far  less  on  the  nature  of 
the  wealth  than  on  the  use  that  is  made  of  it.  Any  article  of 
consumption  may  become  capital  by  the  mere  fact  of  being  em- 
ployed productively.  Thus,  by  prohibiting  private  property  in 
capital,  the  collectivist  system  merely  arrives  at  this  result ;  it 
refuses  to  allow  private  persons  to  use  their  wealth  productively, 
and  only  grants  them  unproductive  employments.  For  instance, 
it  allows  them  to  use  corn  for  eating,  but  not  for  purposes  of  sow- 
ing. In  this  manner  the  result  attained  is  a  paradoxical  one,  and 
scarcely  appears  to  be  reassuring  for  the  future  of  production. 

It  must  further  be  remarked  that  in  order  to  enforce  such  a 
I)rohibition,  i.e.  to  prevent  every  person  from  freely  getting  profit 
out  of  that  portion  of  wealth  which  has  fallen  to  his  lot,  and  over 
which  even  the  coUectivists  recognize  that  he  has  a  legitimate  right 
of  property,  —  in  order  to  effect  this,  measures  must  be  resorted 
to  which  are  grievously  harassing  to  liberty.  The  possessor  must 
be  prevented  from  selling  his  wealth,  from  lending  it,  from  making 
it  yield  returns ;  but  when  the  rights  of  property  have  thus  been 


41 8  PRINCIPLES    OF    POLITICAL    ECONOMY. 

mutilated  of  their  most  essential  attributes,  they  will  become  merely 
fictitious  rights,  and  we  shall  fall  back  into  communism  pure  and 
simple. 

If,  on  the  contrary,  collectivism  is  strict  in  respecting  the  liberty 
of  individuals,  if  it  means  to  leave  their  rights  of  property  intact, 
at  least  over  that  share  of  wealth  which  it  recognizes  them  to  hold, 
the  right  of  disposing  of  it  for  nothing  or  for  an  equivalent,  during 
Hfetime  or  after  death,  in  that  case,  however  reduced  the  amount 
of  private  property  may  be,  it  will  be  enough  for  the  reconstruc- 
tion in  a  few  years  of  a  social  order  which  will  scarcely  differ  from 
the  existing  order  of  things.  In  our  opinion,  then,  collectivism  is 
deluded  in  its  hopes  of  finding  the  golden  mean  between  commu- 
nism and  individualism,  and  will  not  escape  the  necessity  either 
of  plunging  into  the  first  or  of  going  back  to  the  second  of  these 
two  systems. 

III.    The  Different  Formulae  for  the  Division  of  Wealth. 

Inasmuch  as  community  of  goods  is  incapable  of  realization, 
and  as  we  cannot  remain  in  a  state  of  non-division,  we  must  cer- 
tainly look  for  some  method  of  sharing.  Even  collectivism  has 
been  obliged  to  search  for  one,  if  not  for  capital,  at  any  rate  to 
be  applied  to  incomes. 

But  the  problem  is  not  an  easy  one,  even  when  we  transfer  it 
to  a  purely  speculative  plane  by  putting  away  from  us  the  memory 
of  all  precedents.  It  is  useless  to  say  that  the  division  must  be 
made  conformably  with  justice  ;  for  what  is- justice?  The  render- 
ing to  each  man  of  what  is  due  to  him,  suitin  cuique  ti-ibuere. 
But  that  is  precisely  where  the  difficulty  lies  ;  how  are  we  to 
determine  what  each  man  ought  to  receive  ?  What  criterion  will 
enable  us  to  fix  this? 

The  special  aim  of  the  socialist  systems  has  been  to  regulate 
the  distribution  of  wealth  according  to  certain  i)rinciples  of  justice, 
and  each  respective  school  has  identified  itself  vyith  one  or  other 
of  the  four  following  formulcc  :  — 


DISTRIBUTION.  4I9 

An  equal  share  for  each  man. 
Each  man  according  to  his  wants. 
Each  man  according  to  his  capacities. 
Each  man  according  to  his  labor. 

Let  us  examine  each  of  these  in  turn. 

Section  i.    An  Equal  Share  for  Each  Man. 

We  only  mention  this  first  formula  for  the  purpose  of  showing 
that  it  was  once  used,  for  socialists  themselves  gave  it  up  long  ago  ; 
there  are  now  no  "  sharers,"  in  the  literal  sense  of  the  word.  The 
sociaUsts,  who  "  make  for  perfect  equality,"  have  ceased  to  be 
sharers,  and  have  become  communists,  which  is  not  at  all  the  same 
thing.  Nay,  it  is  quite  the  reverse,  for  communism  is  not  in  the 
least  a  system  of  sharing  ;  it  is  the  negation  of  all  sharing. 

Still,  it  is  probable  that,  on  account  of  its  simplicity,  this  system 
was  practised  in  very  many  primitive  societies.  For  the  legislators 
of  old  whose  names  have  been  handed  down  to  us  by  history  or 
legend  —  Minos,  Lycurgus,  and  Romulus  —  seem  to  have  adopted 
the  plan  of  an  equal  division  of  land,  for  each  family,  if  not  for 
each  person.  After  a  few  generations  this  pristine  equality  was 
necessarily  disturbed,  and  had  to  be  restored  by  new  divisions 
which  were  made  at  fixed  intervals.  This  old  custom  continued 
to  exist  during  the  Middle  Ages  in  many  parts  of  Germany  and  of 
England,  and  it  is  still  to  be  found,  though  in  attenuated  shape, 
both  in  Russia  and  in  Asia. 

An  application  of  this  system  of  equal  division  may  be  seen  in 
the  mir,  that  celebrated  organization  of  the  Russian  communes. 
In  the  mir,  land  is  periodically  divided  every  three  years  or  for 
\onger  terms,  and  during  such  periods  each  family  is  entitled  to 
the  independent  enjoyment  of  its  share. 

No  doubt  such  a  system  can  be  carried  out,  if  need  be,  in  primi- 
tive societies  which  comprise  only  a  small  numl)er  of  men,  and  are 
acquainted  with  but  one  class  of  wealth,  —  to  wit,  land.  But  a  man 
must  have  lost  his  senses  to  dream,  even  for  a  moment,  of  applying 


420  PRINCIPLES    OF    POLITICAL    ECONOMY. 

it  to  societies  like  our  great  modem  nations,  in  which  riches  are  of 
such  varied  kinds  and  those  among  whom  they  are  to  be  divided 
are  so  numerous. 

Section  2.     Each  Man  according  to  his  Wants. 

This  formula  was  used  by  Louis  Blanc  in  1S4S,  and  is  to  be 
found  in  the  fifth  chapter  of  his  Organisation  dii  Travail.  He 
says,  "  God  forbid  that  we  should  regard  equality  of  wages  as  a 
complete  realization  of  the  principle  of  justice  !  The  true  formula 
is  :  Let  each  man  produce  according  to  his  aptitudes  and  to  his 
strength,  and  let  him  consutiie  according  to  his  wantsT 

If  this  formula  means  that  the  best  system  of  distribution  would 
be  that  which  guaranteed  to  each  man  all  that  was  necessary  for 
his  wants  or  his  desires,  so  evident  a  proposition  would  be  disputed 
by  no  one.  But,  for  each  man  to  be  assured  of  a  quantity  of  wealth 
which  should  be  enough  to  satisfy  his  heart's  desire,  the  amount  of 
wealth  in  existence  would  have  to  be  unbounded,  or  at  any  rate 
superabundant,  and  in  that  case  all  anxiety  as  to  distribution  would 
be  needless,  for  the  question  would  cease  to  exist.  Unfortunately, 
we  have  not  yet  reached  that  happy  state.  Certainly  a  town  can 
arrange  for  the  distribution  of  water  among  its  inhabitants,  accord- 
ing to  their  respective  requirements,  if  indeed  water  is  plentiful 
enough  for  that ;  but  it  would  find  it  of  considerable  difficulty  to 
grant  them  an  unlimited  supply  of  bread,  wine,  meat,  clothing, 
house-accommodation,  furniture,  carriages,  and  so  forth. 

We  are  therefore  obliged  to  modify  the  formula,  and  to  content 
ourselves  with  saying  that  wealth  shall  be  distributed  iii  proportion 
to  each  man's  wants.  But  such  a  principle  is  open  to  most  serious 
objections. 

First  of  all,  it  presupposes  a  valuation  of  men's  wants ;  but  we 
are  absolutely  without  any  common  measure  which  we  could  use 
for  the  making  of  such  an  estimate.  To  what  extent  do  the  wants 
of  an  artist  exceed  those  of  a  manual  laborer? 

Further,  it  requires  that  we  should  form  a  judgment  actuated  by 
the  utility  and  the  morality  of  these  wants  ;  for  it  is  obvious  that 


DISTRIBUTION.  421 

the  basis  of  distribution  cannot  be  constructed  out  of  any  chance 
wants  or  desires,  but  must  be  made  only  out  of  those  that  we 
regard  as  lawful.  Otherwise  we  should  be  putting  a  premium  on 
all  sorts  of  covetousness.  But  what  authority  shall  we  set  up  thus 
to  hall-mark  men's  wants,  to  accept  the  lawful  and  to  reject  the 
unlawful  ? 

Even  if  we  were  to  put  out  of  reckoning  all  the  practical  impos> 
sibilities  that  we  have  just  noted,  we  should  still  have  to  consider 
whether  it  is  really  conformable  to  justice  to  declare  that  the  man, 
who  has  few  wants  and  simple  tastes,  shall  therefore  be  entitled  to 
a  smaller  share  than  the  man  whose  physical  or  intellectual  wants 
are  far  more  exacting.  I  fail  to  see  why  justice  should  require 
that  the  man  who  has  twice  my  appetite  should  receive  double  my 
share  of  food.  In  any  case  we  can  easily  imagine  that  a  society 
based  on  such  a  principle  would  speedily  present  a  very  pretty 
picture. 

When  the  formula  is  pressed  a  little  further,  it  comes  to  this : 
the  man  who  is  married  or  burdened  with  a  family  ought  to  have 
a  larger  share  than  the  bachelor.  Put  in  these  terms,  it  is  abso- 
lutely undistinguishable  from  the  formula  of  equal  sharing  or  of 
communism.  As  a  matter  of  fact,  Louis  Blanc  himself  foresaw 
these  consequences,  and  the  socialists,  who  now  adopt  the  formula, 
are  merely  communists. 

Section  3.    Each  Man  according  to  his  Capacities. 

Saint- Simon,  on  his  death  in  1825,  left  behind  him  a  politico- 
religious  system  which  was  more  or  less  incoherent.  But  a  pow- 
erful school,  which  bore  his  name,  literally  fascinated  the  most 
distinguished  thinkers  of  that  period.  Two  of  his  disciples,  Bazard 
and  Enfantin,  added  largely  to  his  teaching,  and  made  it  far  more 
precise,  especially  from  an  economic  point  of  view. 

The  heading  of  this  section  forms  a  portion  of  the  famous  motto 
of  his  school :  "  Each  man  according  to  his  capacities,  each  man's 
capacities  according  to  their  works."  But  who  is  to  be  charged 
with  the  task  of  determining  each  man's  capacities  and  merits. 


422  PRINCIPLES    OF    POLITICAL    ECONOMY. 

and  of  appraising  the  remuneration  which  is  his  due  ?  The  Gov- 
ernment ;  it  will  be  the  Government's  duty  to  appoint  every  indi- 
vidual in  every  class  of  work,  just  as  nowadays  it  appoints  public 
servants  and  awards  them  a  rank  and  a  salary  which  are  in  pro- 
portion to  their  presumable  merits. 

This  is  explained  in  the  Doctrine  de  Saint-Simon,  seance  7.* 
"  As  each  man  is  remunerated  according  to  the  service  he  per- 
forms, what  is  now  called  an  income  will  henceforth  be  merely  a 
salary  or  a  pension."  Further  details  are  given  in  the  twelfth 
article  of  his  Economic  Politique,  which  deals  with  the  Organisa- 
tio7i  Indiistrielle :  "  The  mayor,  that  is  to  say  the  captain  of  indus- 
try, must  always  busy  himself  with  obtaining  such  information  as 
will  enable  him  to  tell  whether  any  one  citizen,  more  than  any 
other,  is  fit  to  cultivate  a  farm-land  or  take  charge  of  a  workshop. 
It  is  the  mayor  that  allots  a  task  to  each  man  according  to  his 
capacities ;  let  us  add  that  it  is  he,  too,  who  fixes  the  emoluments 
or  the  income  accruing  from  the  task." 

Under  these  circumstances  the  Government  will  have  to  be  an 
infallible  pope,  just  as  the  priest  is  in  the  Saint-Simonian  system; 
for  how  else  could  we  dream  of  granting  it  so  enormous  a  power? 
The  Saint-Simonians  get  clear  of  the  difficulty  by  saying  that  the 
distribution  of  wealth  in  this  manner  will  be  neither  worse  nor 
more  unjust  than  it  is  now,  for  that  at  present  it  is  distributed  only 
according  to  the  accident  of  birth.  That  is  true  ;  but  public  opin- 
ion is  certainly  far  less  shocked  at  seeing  material  fortune  distrib- 
uted by  the  accident  of  birth  than  it  would  be  if  it  were  awarded 
by  the  favor  and  arbitrary  will  of  the  Government.  Nothing  fur- 
ther would  be  gained  if  the  choice  of  the  Government  were  to 
be  replaced  by  a  system  of  competitions  and  competitive  examina- 
tions, which  could  be  applied  to  all  classes  of  labor  and  all  kinds 
of  occupations,  from  the  very  lowest  up  to  the  very  highest. 

We  hold  that,  while  such  a  system  is  worthless  in  practice,  it  is 
equally  so  from  the  point  of  view  of  justice. 

Intellectual  or  physical  superiority  ought  not  to  be  a  claim  to 
wealth.    It  is  a  sufficient  privilege  of  itself,  and  need  not  be  added 


DISTRIBUTION.  423 

to  by  Tv  new  privilege  ;  namely,  the  right  of  demanding  a  large: 
share  of  material  wealth.  Thus  M.  Renouvier,  in  the  seconcf 
volume  of  his  book,  La  Morale,  says :  "  If  we  are  to  take  public 
opinion  as  our  guide,  the  most  intelligent  and  the  most  skilful 
should  be  regarded,  as  it  were,  as  natural  creditors  of  the  average 
man.     Such  opinions  are  grave  offences  against  moral  law." 

Section  4.    Each  Man  according  to  his  Labor. 

This  formula  may  be  taken,  and  has  often  been  taken,  in  two 
very  different  senses,  which  we  should  distinguish  between  with  a 
care  which  is  sometimes  lacking. 

It  may  mean,  "  for  each  man  the  product  of  his  labor  " ;  in 
other  words,  each  man's  share  should  be  the  things  that  he  has 
produced.  At  first  sight  this  formula  seems  thoroughly  in  accord- 
ance with  our  idea  of  justice,  for  what  could  be  more  just  than  to 
recognize  each  man's  right  to  the  portion  of  wealth  which  he  has 
created  and  which  would  not  be  in  existence  but  for  him  ?  It  also 
seems  very  easy  to  apply,  for  what  could  be  simpler  than  to  let 
each  man  have  for  his  share  the  articles  he  had  produced  ?  That 
does  away  with  all  calculations,  all  interference  of  any  supervising 
authority ;  the  law-giver  has  not  to  apportion  the  shares,  —  for 
each  individual  carves  out  his  own  when  he  creates  it,  —  and  has 
only  to  prevent  encroachments  on  a  neighbor's  portion.  Finally, 
of  all  formulae,  it  seems  to  comply  the  best  with  that  cardinal  con- 
dition we  should  never  lose  sight  of,  the  stimulation  of  production. 
For  what  exhortation  could  incite  to  individual  activity  more 
powerfully  than  the  following :  "  Do  what  you  can  or  what  you 
will,  and  keep  for  yourself  what  you  produce ;  that  will  be  your 
portion.  If  your  share  is  a  large  one,  so  much  the  better  for  you  ; 
if  it  is  scanty,  then  so  much  the  worse  for  you." 

Yet  in  spite  of  its  apparent  simplicity,  this  formula  leaves  much 
to  be  desired,  both  in  theory  and  in  practice.  Instead  of  being 
so  easy  to  apply,  it  is  absolutely  incapable  of  application. 

It  might,  indeed,  be  of  service  in  a  very  primitive  society  where 
division  of  labor  did  not  exist,  under  a  system  of  small  proprietor- 


424  PRINCIPLES    OF    POLITICAL    ECONOMY. 

ship  and  small  industry,  in  which  each  man,  living  by  the  labor  of 
his  own  hands,  only  produced  what  was  necessary  for  his  con- 
sumption, and  only  consumed  what  he  produced.  Under  such  a 
system  no  social  question  need  arise. 

But  in  our  great  modem  societies,  division  of  labor,  on  the  one 
hand,  and  large  production,  on  the  other,  do  not  usually  allow  us 
to  recognize  and  to  determine  what  is  the  product  of  each  man's 
labor.  Should  we  not  fail  if  we  tried  to  make  this  calculation  for 
some  large  business,  say  for  a  railway  company,  or  even  for  an 
ordinary  workshop?  As  soon  as  production  ceases  to  be  individ- 
ual and  becomes  collective,  our  formula,  "  to  each  man  the  prod- 
uct of  his  own  labor,"  loses  all  its  meaning. 

Stanley  Jevons  has  compared  the  process  of  production  in  which 
the  three  factors  of  production  are  joined  together,  to  the  kitchen 
of  the  three  witches  in  Macbeth,  who  throw  into  their  cauldron 
and  stir  up  therein  the  most  heterogeneous  substances  for  the 
purpose  of  brewing  their  "  hell-broth."  In  such  a  blend  as  this 
how  are  we  to  set  about  finding  what  each  man's  share  should 
be?  What  analysis  shall  we  use,  what  law  shall  we  follow,  so  as 
to  arrive  at  this  determination  ? 

Further,  even  were  the  formula  applicable,  it  would,  if  taken 
literally,  lead  to  consequences  as  little  to  the  taste  of  orthodox 
economists  as  of  socialists.  On  the  one  hand,  it  would  lead  to 
the  abolition  of  inheritance  and  of  landed  property  ;  of  inheritance 
because  the  heir  cannot  assert  that  the  property  he  receives  by 
inheritance  or  by  gift  is  the  product  of  his  own  labor ;  of  landed 
property,  because  the  land,  the  earth,  is  the  product  of  no  man's 
labor.  On  the  other  hand,  it  would  lead  to  the  narrowest  individ- 
ualism, to  the  complete  negation  of  the  solidarity  which  is  the 
binding  cement  of  all  human  society ;  thus  it  would  do  away  with 
all  relief  to  the  needy ;  for  as  paupers  produced  nothing,  their 
portion,  too,  would  be  nothing.  In  fact,  the  formula  "  for  each 
man  the  product  of  his  own  labor  "  is  only  the  scientific  setting 
of  the  flimiliar  adage  "  every  man  for  himself"  Does  any  one 
wish  to  get  an  idea  of  the  working  out  of  this  formula  on  a  large 


DISTRIBUTION.  425 

scale?  if  so,  let  him  go  to  some  village  in  France  occupied  by 
small  peasants,  and  he  will  see  each  man  bending  over  his  own 
bit  of  land  which  he  pertinaciously  digs,  living  only  for  his  labor, 
and  not  caring  the  least  in  the  world  for  what  happens  to  his 
neighbors,  or  even  to  his  relations. 

Let  us  then  desist  from  applying  in  its  absolute  sense  the  for- 
mula "  to  each  man  the  product  of  his  own  labor,"  and  let  us 
modify  it  and  say,  "  each  man  according  to  his  labor."  This 
formula  deals  not  with  the  results  of  the  labor,  but  with  the  labor 
itself;  it  takes  into  consideration,  not  the  product  obtained,  but 
the  effort  made. 

Measured  by  the  standard  of  absolute  justice,  this  doctrine 
appears  to  us  to  have  firm  foundations  and  to  be  superior  to  any 
of  those  previously  examined.  Indeed,  it  is  equitable  to  appor- 
tion each  man's  remuneration  according  to  the  trouble  he  has 
taken,  the  sacrifice  he  has  made,  and  the  good  will  he  has  mani- 
fested, for,  as  Kant  says,  "  of  all  things  that  can  possibly  be  con- 
ceived, one  thing  alone  can  be  called  perfectly  good,  and  that  is 
a  good  will." 

This  is  altogether  independent  of  any  extrinsic  circumstances, 
such  as  the  superiority  or  inferiority  of  his  physical  or  intellectual 
powers,  and  the  favorable  or  unfavorable  opportunities  which  may 
have  caused  his  work  to  be  more  or  less  efficacious.  By  the 
criterion  of  absolute  justice,  the  labor  of  a  crossing-sweeper  seems 
to  deserve  an  equal  remuneration  to  that  given  to  the  labor  of 
a  James  Watt  or  a  De  Lesseps,  if  indeed  it  has  been  conscien- 
tiously performed,  that  is  to  say,  if  the  man  has  done  all  that  he 
could  possibly  do.  That  is  our  conception  of  the  nature  of  Divine 
Justice  when  we  declare  that  it  will  mete  out  to  men  recompense 
and  punishment  according  to  what  they  have  striven  to  do,  rather 
than  to  what  they  have  actually  done,  and  that  intentions  and  not 
results  will  have  the  more  weight  in  its  decisions. 

But  for  the  application  of  this  formula  we  require  some  actual 
measure  by  means  of  which  we  may  estimate  and  compare  the 
exertions  made  by  workers.     Now  it  is  absolutely  impossible  for 


426  PRINCIPLES    OF    POLITICAL    ECONOMY. 

US  to  obtain  such  a  scale,  unless  we  profess  to  measure  the  results 
of  labor  by  the  product  obtained,  which  would  be  to  revert  to  the 
preceding  formula.  The  dynamometer  can  give  us  information 
as  to  the  amount  of  muscular  strength  possessed  by  a  man,  but  it 
cannot  teach  us  the  amount  of  fatigue  the  exertion  of  it  has  cost 
him. 

Yet  the  collectivist  school  boasts  of  having  found  this  common 
measure  in  the  amount  of  time  bestowed  on  the  work.  According 
to  this  system  each  man's  remuneration  should  be  in  proportion 
to  the  number  of  hours  he  has  devoted  to  the  labor  of  production. 
A?i  hour's  labor  would  therefore  be  the  desired  common  measure. 
This  was  the  method  advocated  by  Karl  Marx,  who  was  formerly 
the  leader  of  the  Internationale,  and  who  is  still  regarded  as  the 
teacher  and  the  oracle  of  the  collectivist  school.  He  died  in 
18S3,  but,  as  we  have  already  mentioned,  he  pubhshed  in  1867 
his  deservedly  famous  book  on  Capital.  He  there  says  :  "  The 
quantity  of  labor  is  to  be  measured  by  its  duration  in  time.  The 
labor  which  forms  the  substance  of  the  value  of  commodities  is 
homogeneous  human  labor,  the  expenditure  of  the  same  human 
laboring  powe7-sy 

But  how  foolish  is  this  professed  ability  to  estimate  the  exertion 
expended  in  any  task  by  its  duration  !  We  cannot  measure  our 
pains  any  more  than  our  pleasures  by  the  dial  of  the  clock.  We 
all  know  that  the  farm-laborer  who  works  "  by  the  job  "  does  in 
the  same  time  thrice  the  amount  of  work,  expends  three  times  as 
much  strength,  and  takes  three  times  as  much  pains,  as  the  man 
who  works  by  the  day.  In  the  above  example  we  have  only  con- 
sidered labors  of  the  same  nature ;  for  who  would  ever  dream  of 
measuring  by  the  time  occupied  the  work  done  by  the  man  who 
clears  a  plot  of  ground  and  by  the  painter  who  covers  his  canvas  ? 
why  not  measure  them  by  the  yard  ? 

Long  before  he  knew  Karl  Marx's  theory,  Proudhon  had  said  : 
"  Putting  aside  all  the  differences  inherent  in  various  kinds  of 
work,  time  is  an  arbitrary  measure  to  employ,  a  real  Procrustes' 
bed,  on  which  struggles  mutilated  or  distended  Hiabor,  and   on 


DISTRIBUTION.  42/ 

which  hbcrty  and  equality  breathe  their  last."  And  long  before 
him  Moliere  had  said  more  simply  in  the  Misanthrope :  — 

"  Voyons,  Monsieur,  le  temps  ne  fait  rien  a  I'affaire." 

Moreover,  is  there  not  reason  to  fear  that  idleness  will  fare  far 
too  well  under  this  new  system  ?  for  if  the  right  to  a  double  share 
of  remuneration  can  be  obtained  by  taking  twice  the  time  over 
one's  work,  though  the  method  will  be  highly  advantageous  for 
individuals,  society  as  a  whole  will  find  it  to  be  exceedingly 
dangerous. 

Karl  Marx  answers  this  objection  by  stating  that  the  time  neces- 
sary for  the  production  of  any  article  must  be  fixed  and  rated 
according  to  statistical  information.  Thus,  if  we  know  the  number 
of  bushels  of  corn  produced  yearly  in  France,  the  number  of  labor- 
ers engaged  in  producing  them,  and  finally  the  number  of  hours 
occupied  by  these  men,  it  will  not  be  difficult  to  find  by  simple 
division  the  time  which  is  socially  necessary,  that  is  to  say,  the 
average  number  of  hours  that  is  required,  for  the  production  of  a 
bushel  of  corn. 

This  ingenious  arrangement  is  a  partial  answer  to  our  criticism, 
but  only  so  far  as  it  departs  from  the  principle  which  was  suggested 
for  appUcation.  If  we  reckon  ten  hours  to  be  the  length  of  the 
social  labor  which  is  necessary,  on  the  average,  for  the  production 
of  a  bushel  of  corn,  it  is  clear  that  the  skilful  or  fortunate  man, 
who  has  been  able  to  produce  two  bushels  in  the  same  period  of 
time,  will  receive  a  double  share,  whilst  the  man  who  has  been 
clumsy  or  unlucky  enough  to  produce  merely  half  a  bushel,  will 
get  only  half  a  share.  This  is  no  longer  the  principle  of  each  maft 
according  to  his  labor,  and  according  to  the  exertions  he  has 
made  ;  no  !  it  is  the  principle  of  each  man  according  to  the  results 
of  his  labor,  and  that  is  quite  a  different  thing. 

If  we  really  wish  to  abide  by  the  ideal  of  justice  which  this  for- 
mula proposed  to  realize  and  for  which  it  was  invented,  we  must 
deal  with  individual  labor  and  not  social  labor :  either  justice  is 
individual,  or  it  is  not;  it  has  only  to  do  with  the  striking  of 
averages.      ^" 


428  PRINCIPLES    OF    POLITICAL    ECONOMY 


IV.     Why  there  is  no  Solution. 

Thus  the  end  that  we  are  pursuing  eludes  our  grasp  ;  we  cannot 
find  any  system  of  distribution  which  completely  satisfies  our  idea 
of  justice,  or  those  that  we  can  find  are  not  applicable. 

It  is  useless,  then,  to  persist  in  this  vain  pursuit.  Let  us  con- 
fess that  there  is  no  formula  of  distributive  justice,  i.e.  a  formula 
which  can  solve  the  social  question.  Cairnes,  in  his  Leading 
Principles  of  Political  Economy,  arrived  at  this  conclusion,  after 
having  made  a  critical  examination  very  similar  to  our  own.  Jus- 
tice never  resides  within  the  hmits  of  a  formula,  or,  if  by  chance 
a  suitable  formula  is  thought  to  be  found,  it  proves  to  be  injustice  : 
summu7njus  sunima  iiijuria. 

Society  is  not  formed  by  the  logical  development  of  an  a  priori 
principle  ;  it  is  the  resultant  of  a  collection  of  very  complex  facts, 
some  more  or  less  conformable,  others  more  or  less  opposed,  to 
our  idea  of  justice  ;  e.g.  occupation  or  conquest,  customs  or  laws, 
labor  or  saving.  We  can  only  take  society  as  it  is,  its  good  and 
its  bad  points  together,  and  strive  to  eliminate  the  causes  of  jus- 
tice which  it  conceals  and  to  develop  the  germs  of  justice  which  it 
contains.  The  social  question  will  be  solved,  first  by  guaranteeing 
each  man  the  minimum  without  which  he  is  in  danger  either  of 
not  becoming,  or  of  not  remaining,  a  "  man,"  in  the  full  sense  of 
the  word.  The  next  step  would  be  to  give  the  working  classes 
something  more  than  that  minimum  ;  viz.  a  growing  share  in  the 
benefits  of  that  civilization  of  which  they  form  a  more  and  more 
important  factor.  Further,  any  wealth  which  remained  over  should 
be  put  into  the  hands  of  those  who  can  make  the  best  use  of  it. 
The  inequality  of  the  distribution  of  wealth  would  be  of  little  harm 
if  the  rich  were  only  stewards,  who  were  entrusted  with  the  care 
of  making  the  best  use  of  their  wealth  in  the  interests  of  all,  and 
faithfully  fulfilled  that  social  function.  History  teaches  us  this 
very  clearly ;  we  shall  see  that  landed  property,  which  men  have 
unavailingly  tried  to  fit  in  with  some  principle  of  distributive  jus- 


DISTRIBUTION.  429 

tice,  is  very  easily  explained  in  its  successive  forms  as  a  means  of 
using  land  to  a  progressively  better  effect. 

This  modification  of  the  distribution  of  wealth  may  be  brought 
about  in  certain  measure  by  the  natural  working  of  economic  laws, 
such  as  the  law  of  supply  and  demand  ;  the  exercise  of  individual 
initiative  by  means  of  association  may  also  be  of  great  service ; 
but  in  our  opinion  neither  of  these  forces  will  be  powerful  enough 
without  State  interference.  We  do  not  mean  that  the  State  should 
be  the  distributor-general  of  wealth  and  should  give  each  man  his 
share,  for  we  have  already  rejected  such  a  scheme  ;  but  the  State 
can  efificaciously  influence  the  devolution  of  wealth  by  laws  which 
relate  to  inheritance,  decree  taxes,  regulate  contracts  such  as  loan 
for  interest,  land-rent,  and  the  hire  of  labor,  and  in  case  of  need 
impose  compulsory  expropriation  in  the  public  interests.  Such 
influence  has  always  been  exerted  by  the  State,  —  sometimes  with 
great  success,  —  but  not  in  every  case  in  conformity  with  justice  or 
with  social  utility. 

Thus  the  striking  differences  which  exist  between  the  distribution 
of  private  fortunes  in  France  and  in  England  mainly  arise  from  the 
difference  between  the  laws  relating  to  inheritance  which  obtain  in 
the  two  countries. 

There  is  only  one  principle  which  regulates  the  distribution  of 
wealth  in  present  society ;  this  is  private  property,  which  will  form 
the  subject  of  our  next  chapter. 


CHAPTER   III. 
THE  RIGHTS  OF  PROPERTY. 

I.    The  Origin  of  the  Rights  of  Property. 

The  rights  of  private  property  are  the  rights  that  a  person  may 
exercise  over  a  thing  to  the  exclusion  of  every  other  person. 

The  economists  of  the  Bastiat  school  base  this  right  upon  labor ; 
according  to  them  a  man  should  be  the  owner  of  the  things 
created  by  his  own  activity,  which  are,  in  a  way,  only  the  legiti- 
mate extension  of  his  personality.  But  in  practice  the  use  of  this 
criterion  would  expose  us  to  strange  deceptions.  Say  to  a  man, 
"  Let  us  make  an  inventory  of  your  possessions  ;  is  this  house  the 
product  of  your  labor?  "  The  answer  would  be,  "  No,  it  came  to 
me  from  my  family."  "  Is  that  forest,  are  these  fields,  the  product 
of  your  labor  ?  "  "No,  they  are  the  product  of  no  man's  labor." 
"Those  goods  that  fill  your  shops,  the  crops  that  fill  your  barns, 
were  they  produced  by  your  labor?"  "  No,  they  came  from  the 
labor  of  my  workmen  or  of  my  tenant  farmers." 

Lawyers  have  been  more  prudent  and  more  accurate.  Labor 
does  not  figure  in  the  definitions  given  of  the  rights  of  property 
either  in  the  French  Civil  Code,  (that  child  of  the  Revolution,)  or 
in  the  texts  of  Roman  Law.  They  accept  property  as  a  fact  and 
define  it  by  its  attributes,  without  troubling  to  justify  it.  Nor  do 
they  even  rank  labor  amongst  the  numerous  modes  of  acquiring 
property  which  they  specify. 

In  these  varied  systems  of  legislation  occupatio7i  is  regarded  as 
the  primary  fact  whence  the  right  of  property  takes  its  rise.  And 
that  is  the  true  opinion,  for  as  Graham  Sumner  excellently  ob- 
serves in  his  book  The  Respective  Duties  of  the  Classes  in  Society, 
"  Both  historically  and  logically  appropriation  precedes  produc- 
430 


DISTRIBUTION.  43 1 

tion.  Early  races  regard  possession  as  the  best  title  to  property. 
Priority  of  occupation  is  the  only  title  which  can  be  preferred  to 
the  right  of  the  strongest."  However,  as  occupation  is  only 
observable  at  the  first  beginnings  of  property,  and  as  a  return  to 
origins  is  not  often  necessary  in  the  substantiation  of  claims  to 
property,  in  practice  its  place  is  taken  by  prescription.  But  pre- 
scription, just  like  occupation,  is  only  a  fact  of  possession,  and  is 
similarly  devoid  of  any  moral  value.  Let  us  then  accept  private 
property  as  an  historical  fact,  and  study  it  in  its  attributes  and  in 
its  scope. 


II.    What  are  the  Attributes  of  the  Rights  of  Property? 

The  right  of  property  is  defined  by  the  Roman  jurisconsults  as 
the/us  ut€ndi,friie7idi,  et  abutendi,  and  by  the  French  Civil  Code 
as  "  the  right  of  enjoying  and  of  disposing  of  things  in  the  most 
absolute  manner."  But,  as  all  law  students  know,  the  portion  of 
this  definition  which  is  the  only  characteristic  attribute  of  the 
right  of  the  property  is  the  jics  abutendi;  were  it  restricted  to  the 
jus  utendi  or  fruendi,  it  would  be  merely  a  right  of  usufruct  or 
usage.  This  right  of  absolute  disposal  may  be  viewed  under 
various  aspects. 

In  our  chapters  on  "  Consumption  "  we  have  discussed  those 
modes  which  merely  suppose  a  personal  employment  of  wealth, 
such  as  reproductive  or  unproductive  consumption  or  hoarding. 
Now  we  have  to  deal  only  with  those  modes  of  disposal  which 
influence  the  distribution  of  wealth  inasmuch  as  they  imply  a 
transfer  of  property. 

Section  i.  A  man  may  dispose  of  his  article  for  a  certain  con- 
sideration by  means  of  sale,  kiting,  or  lendijig,  or  by  handing  it 
over  to  hired  workmen  to  turn  to  further  account  for  him.^ 

This  mode  of  employment  is  of  grave  import  as  regards  the 
distribution  of  wealth,  for  by  it  "  classes  "  are  necessarily  created 

*  The  French  phrase  is  the  all-meaning  "faire-valoir."  —  Translator's  Note. 


432  PRINCIPLES    OF    POLITICAL    ECONOMY. 

in  society.  Thus  there  are  debtors,  tenants,  hired  laborers  who 
have  all,  more  or  less,  to  work  on  behalf  of  others  ;  and  as  a 
counterpart  to  these  there  are  owners  of  property,  whether  they 
live  on  their  income  or  are  employers  of  labor,  who  reap  some  of 
the  fruits  of  other  people's  toil.  We  shall  weigh  these  conse- 
quences when  we  treat  of  the  various  categories  of  sharers. 

In  any  case  the  above  are  attributes  which  are  inseparable  from 
the  right  of  property. 

The  right  of  property  over  a  thing  necessarily  involves  the  right 
to  sell  or  to  exchange  the  article,  for  without  that  it  would  be 
useless.  We  know  that,  given  the  present  social  organization, 
which  is  based  on  division  of  labor,  each  one  of  us,  generally 
speaking,  only  produces  articles  for  the  purpose  of  exchange.  To 
do  away  with  exchange,  in  this  fashion,  would  simultaneously  put 
a  stop  to  all  division  of  labor,  and  would  cause  society  to  revert 
to  a  state  of  savagery.  Thus  the  owner's  right  of  exchanging  a 
thing  has  always  been  beyond  the  reach  of  controversy. 

Once  that  we  have  admitted  the  right  to  sell,  i.e.  a  man's  right 
to  yield  up  his  thing  for  a  price  in  money,  the  necessary  conse- 
quence is  the  right  to  yield  it  up  on  any  condition  ;  for  instance, 
for  a  specified  term,  and  in  consideration  of  a  yearly  sum  i)ayable 
during  the  period  of  time  (this  includes  letting  on  hire,  the  sys- 
tem of  granting  leases,  and  loans  for  interest).  It  is  further  ad- 
missible to  hand  over  one's  article  to  workmen  who  have  to  supply 
a  certain  amount  of  labor  on  it. 

Section  2.  The  article  may  be  disposed  of  gratuitotisly  by  gift 
or  by  bequest.  This  manner  of  employment,  too,  seriously  affects 
distribution ;  by  allowing  persons  who  have  acquired  wealth  by 
their  labor  to  transfer  it  to  others,  who  have  not  worked  to  obtain 
it,  this  system  may  plant  a  do-nothing  by  the  side  of  each  worker, 
and  create  whole  unproductive  classes,  who  will  accumulate  wealth 
without  having  done  aught  to  deserve  \\.,frugcs  consumere  nati. 

That  is  true  ;  but  we  cannot  dream  of  depriving  the  owner  of  a 
thing  of  the  right  of  giving  it  away  during  his  lifetime  or  after- 
wards.    If  he  is  allowed  to  destroy  it,  why  should  he  not  give  it 


DISTRIBUTION.  433 

away  ?  if  he  can  consume  it  for  his  own  gratification,  perhaps  in  a 
senseless  way,  why  should  he  not  hand  it  over  for  others  to  con- 
sume ?  The  history  of  early  societies  teaches  us  that  the  gift  or 
the  present  was  one  of  the  most  ancient  modes  of  disposing  of 
wealth,  and  probably  preceded  exchange  or  sale.  Now  one  of 
the  principal  advantages  conferred  by  the  right  of  property  is  the 
ability  to  communicate  its  benefits  to  others. 

Let  our  final  and  clenching  argument  be  that  which  we  urged 
in  favor  of  the  right  to  give  ;  to  wit,  the  fear  of  irretrievably 
injuring  productive  activity  by  preventing  owners  from  disposing 
of  their  property  for  the  benefit  of  their  children.  For  the  honor 
of  human  nature,  it  must  be  said  that  there  are  very  many  men  in 
the  world  who  work  and  who  save  far  less  for  themselves  than  for 
others.  If  we  compel  them  to  think  only  of  themselves,  they  will 
work  less  and  spend  more.  Think  of  the  wealth  that  would  then 
be  wasted  in  unproductive  consumption  in  consequence  of  the 
freer  living  that  would  ensue  !  Think  of  the  years  that  would 
be  lost  to  productive  labor  through  men  retiring  prematurely  ! 
By  depriving  men  of  the  right  of  disposing  of  the  fruits  of  their 
own  labors,  we  should  break  one  of  the  most  powerful  springs  of 
production.  Things  that  we  could  no  longer  dispose  of  and  that 
would  be  non-transferable  would  thereby  lose  a  portion  of  their 
utility ;  thfey  would  be  less  desired,  and  we  should  make  less  effort 
to  produce  them. 

Certainly  we  might  try  to  draw  fine  distinctions  between  dona- 
tion and  bequest,  between  the  right  to  give  during  life  and  after 
death,  by  asserting  that  the  rights  of  private  property,  and  conse- 
quently the  right  of  disposing  of  it,  vanish  with  their  original  pro- 
ducer; but  that  would  be  a  misapprehension  of  the  rights  of 
property.  In  the  emphatic  language  of  law,  this  right  is  real  and 
not  personal ;  if  it  is  to  be  based  on  labor,  we  must  recognize  that 
it  ought  to  last  as  long  as  the  result  of  the  labor,  that  is  to  say,  as 
long  as  the  article  produced.  But  if  we  refuse  to  grant  the  right 
to  bequeath,  on  the  ground  that  it  only  comes  into  effect  after  the 
death  of  the  owner,  we  should  likewise  have  to  abolish  alienation, 


434  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  consequences  of  which  clearly  survive  the  disposer,  and  any 
form  of  disposal  of  a  definitive  character,  such  as  those  which  law 
denies  to  usufructuaries. 

Moreover,  the  distinction  would  be  almost  impossible  to  apply ; 
for  it  may  always  be  evaded  by  various  combinations  well  known 
to  lawyers,  e.g.  donation  with  reservation  of  usufruct. 

We  have  no  reason  to  wish  that  the  wealthy  should  less  often 
dispose  of  their  goods  gratuitously;  nay,  we  should  rather  hope 
them  to  confirm  this  practice  and  to  make  it  a  rule  to  leave  a 
space  open  in  their  wills  for  philanthropic  or  intellectual  undertak- 
ings. In  that  way  they  would  follow  in  the  wake  of  wealthy  Ameri- 
cans, who  are  already  adding  to  the  common  estate  of  society  by 
such  methods. 

Section  3.  As  the  right  of  property  over  a  thing  naturally  lasts 
as  long  as  the  thing,  the  duration  of  the  right  must  vary  in  accord- 
ance with  the  length  of  existence  of  the  particular  article.  Now 
one  kind  of  wealth  —  and,  solitary  as  it  is,  it  comprises  more  than 
half  the  total  of  all  the  wealth  in  the  world  —  lasts  forever ;  we 
refer  to  land.  Another  class  of  wealth,  of  no  less  importance,  also 
possesses  a  perpetuity  that  might  be  called  artificial,  for  it  springs 
less  from  the  nature  of  the  articles  than  from  certain  agreements 
entered  upon  by  men.  This  includes  the  capital  represented  by 
share-warrants,  certificates  of  government  stock,  and  so  forth. 
Therefore,  as  the  right  exists  as  long  as  the  object  over  which  it 
holds,  the  right  of  property  over  these  various  classes  of  goods 
must  share  the  perpetuity  of  these  goods. 

By  this  highly  important  attribute  of  the  right  of  property,  the 
distribution  of  wealth  is  powerfully  affected.  As,  in  this  instance, 
the  right  must  survive  the  person  of  the  original  holder,  it  has  to 
pass  to  some  other  person,  i.e.  to  a  successor ;  hence  inheritance 
is  seen  to  be  a  necessary  consequence  of  the  perpetuity  which  is 
characteristic  of  the  right  of  property. 

Most  socialists  regard  as  one  of  the  gravest  vices  of  the  social 
^rder,  and  as  one  of  the  most  inicjuitous  of  the  injustices  that 
)btain  in  the  distribution  of  wealth,  the  principle  of  inheritance 


DISTRIBUTION.  435 

which  grants  the  children  of  the  rich,  even  to  the  hundredth  gen- 
eration, the  privilege  of  being  rich  in  their  turn  without  having 
done  aught  to  deserve  it. 

We  have  already  seen  that  Saint-Simon's  school  included  the 
abolition  of  inheritance  in  its  programme ;  but,  contrary  to  the 
usual  opinion,  Fourier  and  his  school  fully  admitted  the  principle. 
The  contemporary  collectivist  school  partly  allows  inheritance  as 
a  consequence  of  the  right  of  private  property.  This  concession 
ceases  to  be  astounding  if  we  only  remember  that  collectivism 
excludes  from  the  purview  of  private  property  both  land  and  capi- 
tal, i.e.  the  only  wealth  which  is  perpetual,  and  the  inheritance  of 
which  might  have  serious  consequences.  Inheritance  is  of  trifling 
importance  when  restricted  to  objects  of  consumption,  as  under 
the  collectivist  system. 

We  shall  see  later  on  that  this  injurious  effect  of  inheritance,  the 
possible  creation  of  an  idle  class,  is  counterbalanced  by  certain 
social  advantages.  Further,  it  would  be  childish  to  seek  to  pre- 
vent the  inheritance  of  wealth,  for  we  cannot  dream  of  hindering 
the  application  of  the  principle  of  transmission  by  inheritance  to 
many  other  privileges  which  are  even  more  important  than  material 
fortune.  We  refer  to  health,  talent,  virtues,  social  esteem,  and  a 
mere  surname  which  of  itself  alone  is  often  worth  a  fortune.  The 
law  of  heredity  is  assuredly  the  natural  law  par  excellence. 

The  following  might  be  the  most  sensible  mode  of  settling  the 
complicated  question  of  inheritance  and  of  determining  who  ought 
to  receive  the  goods  which  survive  their  original  owners. 

Firstly.  Whenevier  an  owner  has  assigned  his  property  by  will, 
his  desires  should  be  respected,  whatever  they  may  be.  We  know 
that  freedom  to  give  and  to  bequeath  is  a  natural  attribute  of  the 
right  of  property.  Further,  if  we  confine  ourselves  to  our  criterion 
of  a  fair  distribution  of  wealth,  e.g.  the  placing  of  wealth  in  the 
hands  of  those  who  can  use  it  best,  it  seems  that  no  one  is  better 
fitted  than  the  owner  to  point  out  the  suitable  persons. 

Secondly.  Whenever  the  owner  has  not  conveyed  his  property 
to  any  one,  the  property  should  fall  to  the  government  as  unclaimed 


436  PRINCIPLES    OF    POLITICAL    ECONOMY. 

estates;^  for  society,  as  represented  by  the  government,  seems  to 
be  the  natural  heir  of  all  persons  who  have  not  formally  disposed 
of  their  goods.  In  fact,  each  of  us  who  succeeds  in  the  world  and 
becomes  an  owner,  owes  part  of  his  respective  share  of  prosperity 
to  the  collaboration  of  all  and  to  that  common  fund  of  ideas, 
inventions,  means  of  action,  and  modes  of  transport  from  which 
we  benefit.  It  is  just,  therefore,  that  at  our  death  and  in  default 
of  any  other  person  to  whom  we  have  assigned  our  rights,  our 
property  should  return  to  swell  the  social  patrimony  from  which 
it  has  partly  proceeded. 

To  use  legal  phraseology,  freedom  of  disposal  by  will,  on  the 
one  hand,  and  the  abolition  of  succession  ab  intestato,  on  the  other, 
should  be  the  leading  principles  to  guide  the  legislator  in  matters 
of  inheritance,  as  general  principles  only,  for,  if  strictly  applied, 
they  would  be  very  unjust. 

With  reference  to  freedom  of  disposal,  it  must  not  be  forgotten 
that  every  owner  of  property  has  certain  obligations  as  regards 
his  children,  his  parents,  and  his  wife ;  i.e.  as  regards  those  to 
whom  he  has  given  life,  from  whom  he  has  received  life,  and  with 
whom  he  shares  life.  Every  system  of  law  compels  him,  at  least, 
to  support  them  during  life,  and  after  death  the  obligation  is 
heightened  instead  of  being  nullified.  It  is  right,  therefore,  that 
freedom  of  disposal  by  will  should  exist  only  after  a  certain  portion 
has  been  put  aside  for  the  above  classes  of  persons ;  but  the 
"  reservation"  which  the  French  Civil  Code  grants  is  an  altogether 
excessive  share.  As  Montesquieu  says,  "  though  the  law  of  nature 
orders  fathers  to  provide  their  children  with  food,  it  does  not  com- 
pel them  to  make  them  their  heirs." 

It  would  be  barbarous  to  apply  hard  and  fast  rules  for  the 
abolition  of  succession  ab  intestato,  if  there  is  reason  to  believe 
that  the  silence  of  the  deceased  has  been  due  to  mere  negligence 

1  This  was  advocated  by  Jeremy  Bentham  in  his  Supply  ivithotit  Burden 
or  Escheat  vice  Taxation,  1795  (Vol.  II  of  his  Works).  The  late  INI.  Godlin 
of  Guise  included  this  and  much  more  under  the  claim  for  "  Theredite  de 
I'etat,"  with  which  he  identified  himself.  —  J.  B. 


DISTRIBUTION.  437 

or  lack  of  foresight.  Succession  ab  intestato  for  children,  parents, 
and  even  for  brothers  and  sisters,  should  in  all  cases  be  admitted 
as  a  reasonable  interpretation  of  the  testator's  intentions ;  for  if 
he  had  meant  to  disinherit  them,  he  would  have  said  so.  But, 
when  we  come  to  a  cousin  in  the  twelfth  degree,  or  even  to  a 
nephew,  it  would  be  absurd  to  apply  the  same  reasoning  and 
interpret  the  silence  of  the  deceased  as  giving  a  right  to  the 
claimants. 

It  is  almost  needless  to  remark  that  the  right  of  succession  ab 
intestato  can  in  no  way  stimulate  productive  activity,  and  that  it  is 
far  more  likely  to  encourage  idleness  by  the  "  expectations  "  which 
it  engenders.  A  heritage  which  comes  from  an  uncle  in  America 
is  a  mode  of  acquisition  which  does  not  differ  in  the  least  from  a 
drawing  in  a  lottery,  and  exercises  the  same  demoralizing  influence 
both  on  the  recipient  and  on  those  who  envy  him  his  good  luck. 

The  various  schools  think  very  differently  as  to  our  suggested 
methods.  The  socialists  highly  approve  of  abolition  of  succession 
ab  intestato,  but  will  scarcely  listen  to  the  mention  of  freedom  of 
disposal  by  will.  It  is  odious  to  them  inasmuch  as  it  is  one  of  the 
sovereign  attributes  of  the  right  of  property ;  and  further,  it  is 
regarded  with  suspicion  because  there  is  a  fear  that  the  testator, 
in  the  disposal  of  his  property,  might  be  inspired  less  by  consid- 
erations of  social  utility  than  by  his  own  personal  preferences, 
and  might  thus  revive  all  the  injustice  of  the  old  order  of  things. 

The  Catholic  school  approves  of  freedom  of  disposal,  for  that 
points  to  a  re-establishment  of  paternal  authority  and  (though  the 
avowal  is  not  openly  expressed)  may  lead  to  a  return  to  primo- 
geniture and  the  reconstruction  of  a  landed  aristocracy.  But 
this  school  is  entirely  opposed  to  the  abolition  of  succession  ab  in- 
testato, for  it  wishes  to  keep  estates  in  the  family  —  a  desire  shared 
by  all  legislators  of  conservative  tendencies. 

The  Liberal  economic  school  is  enamoured  of  neither  of  these 
principles.  Freedom  of  disposal  by  will,  so  it  thinks,  may  lead  to  a 
return  to  the  old  order  and  to  that  past  which  it  helped  to  destroy. 
In  England  and  in  France  fathers  do  not  avail  themselves  even  of 


438  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  narrow  liberty  they  might  find  within  the  hmits  of  the  shares 
allowable  by  law. 

Still  less  does  the  Liberal  school  sanction  the  abolition  of  succes- 
sion ab  intcsiato ;  for  it  is  horrified  by  the  prospect  of  the  State 
becoming  the  universal  heir,  and  holds  that,  as  regards  social 
utility  and  the  judicious  employment  of  wealth,  property  had 
better  fall  into  the  first  comer's  hands  rather  than  into  the  abyss 
of  State  budgets. 

The  drawers  of  the  Civil  Code  have  obeyed  opposing  tendencies 
in  turn.  The  levelling  notions  of  the  Revolution  caused  them  to 
adopt  the  rule  of  equal  division ;  but,  in  accordance  with  the 
co-proprietorship  of  the  family  as  a  whole  which  obtained  under 
the  Old  Regime,  they  extended  inheritance  ab  intestato  as  far 
as  cousins  of  the  twelfth  degree,  and  excluded  wives. 

However,  for  some  time  greater  definiteness  has  been  observ- 
able in  the  double  aim  we  have  expounded.  A  number  of  econo- 
mists and  of  lawyers  are  making  two  simultaneous  demands  :  firstly, 
a.  certain  extension  of  freedom  of  disposal  by  raising  the  portion 
that  can  be  bequeathed  by  will  at  least  to  a  half  of  the  whole 
estate  ;  secondly,  a  certain  limitation  of  the  right  of  succession  ab 
intestato  which  would  be  confined  to  the  fourth  degree,  or  at 
the  outside  to  the  sixth  degree. 

III.     Over  What  Things  should  the  Right  of  Property- 
extend  ? 

In  modern  society  private  property  extends  over  everything 
that  can  be  seized  or  occupied  by  man.  Almost  the  only  objects 
that  have  still  escaped  its  sway  are  those  which  from  their  very 
nature  are  not  susceptible  of  such  appropriation ;  viz.  the  air,  the 
sea,  and  great  rivers.  But  facts  are  not  necessarily  in  agreement 
with  equity,  and  the  mere  fact  of  an  object  being  appropriated 
does  not  prove  that  it  can  be  rightfully  appropriated.  On  this 
subject  it  seems  wise  to  draw  certain  distinctions ;  two  have  been 
proposed.     Let  us  examine  them  in  turn. 


DISTRIBUTION.  439 


Section   i.    The   Distinction    between   Capital   and   Objects   of    Con- 
sumption. 

The  collectivist  school  concedes  the  right  of  private  property 
over  every  article  that  is  destined  for  consumption,  but  refuses 
it  over  all  objects  to  be  used  in  production ;  that  is  to  say  (in  the 
words  of  the  programmes  issued  by  that  school),  "the  soil,  the 
subsoil,  buildings,  machinery,  and  capital  of  every  kind." 

This  distinction  has  already  been  mentioned  and  criticised  by 
us.  It  is  hopeless  to  attempt  to  find  any  rational  basis  on  which 
it  might  be  built.  Starting  from  the  principle  that  private  property 
must  be  grounded  on  labor,  it  cannot  be  denied  that  capital, 
whatever  form  it  may  take,  consists  only  of  the  products  of  labor, 
which  differ  from  other  wealth  in  nothing  but  the  employment 
to  which  they  are  put. 

That  capital  is  originally  the  product  of  labor  is  not  denied 
(for  it  cannot  be  denied)  by  Karl  Marx  himself  in  his  Capital. 
He  does  not  contest  the  legitimacy  of  the  worker's  ownership  of 
the  instrument  of  his  labor.  But  the  theory  of  his  famous  book 
is  that  capital,  as  it  exists  nowadays,  is  no  longer  related  to 
the  original  accumulation  which  was  the  fruit  of  labor  and  of 
saving ;  that  the  modern  accumulation  of  capital  has  been  built 
up  by  the  expropriation  of  the  original  producers,  and  by  the 
plundering  of  the  workers  effected  by  means  of  trade,  of  usury, 
and  especially  of  the  wages-system  ;  and  that  "  capital  has  entered 
the  world  sweating  blood  and  mud  from  every  pore."  In  other 
words,  the  theory  advocated  by  Karl  Marx  and  the  collectivists 
comes  to  this  :  certainly  capital  is  the  product  of  man's  labor,  but 
it  is  the  product  of  the  labor  of  the  workers,  and  not  of  the  labor  of 
the  capitalists.  Therefore  it  must  have  been  stolen  by  the  latter 
from  the  former. 

We  shall  have  to  examine  the  legitimacy  of  this  thesis  when  we 
deal  with  the  conflict  between  capital  and  labor  with  regard  to 
profits.  At  present  we  need  not  discuss  it.  Even  if  we  were  to 
grant  that  all  capitalists  are  robbers,  the  argument  would  not  touch 


440  PRINCIPLES    OF    POLITICAL    ECONOMY. 

US  ;  for  in  this  place  we  have  not  to  determine  whether  capitalists 
are  the  rightful  owners  of  the  capital  they  possess ;  our  business  is 
to  discover  whether  capital  can  be  the  object  of  any  lawful  right 
of  property  whatsoever.     That  is  quite  another  matter. 

Thus  the  argument  that  the  collectivists  adduce  in  favor  of  their 
distinction  is  rather  a  question  of  fact  than  a  question  of  principle. 
They  assert  that,  as  it  is  impossible  to  dispense  with  capital  in  pro- 
duction/ possessors  of  capital  will  necessarily  be  placed  in  a  pre- 
dominant position,  which  will  enable  them  to  impose  their  own 
terms  on  those  of  their  fellow-men  who  are  without  capital ;  there- 
fore they  can  compel  them  to  work  for  their  profit,  whether  as 
slaves,  as  serfs,  or  as  wage-receivers.  To  this  our  answer  must  be 
that  the  possession  of  wealth  of  any  kind  —  whether  it  be  as  capi- 
tal or  as  articles  of  consumption,  it  matters  not  —  will  always  give 
a  privileged  position  to  the  man  who  has  been  skilful  enough  to 
obtain  that  wealth,  and  will  enable  him  in  a  certain  measure  to  dic- 
tate his  own  conditions  to  the  rest  of  mankind.  The  only  means 
of  obviating  such  a  result  would  be  to  prohibit  all  large  fortunes 
and  to  enforce  a  universal  mediocrity  of  fortune ;  in  other  words, 
to  return  to  communism.  In  whatever  direction  collectivism  seeks 
to  ride,  it  always  ends  by  being  thrown  into  this  ditch. 

It  must  further  be  observed  that  as  soon  as  ever  private  prop- 
erty in  capital  is  abolished,  there  will  no  longer  be  any  motive  for 
individual  saving.  But  at  the  present  day  it  is  precisely  this  indi- 
vidual saving  that,  from  its  countless  springs,  incessantly  feeds  and 
renews  the  flood  of  capital  within  a  country.  If  once  these  springs 
cease  to  flow,  how  can  we  insure  the  maintenance,  the  renewal, 
and  the  gradual  increase  of  the  capital  of  a  country? 

Oh  !  it  is  rejoined,  the  State  will  yearly  deduct  a  reserve  sum 
from  the  income  of  society,  which  would  then  be  blended  with  its 
own.  He  would  indeed  be  reckless  who  would  allow  the  econonflic 
future  of  a  country  to  depend  upon  the  savings  made  by  a  gov- 
ernment ! 

1  As  it  has  been  happily  put  by  a  German  writer,  their  cry  is  not  "away 
with  that  capital !  "  but  "  here  with  that  capital !  "  — J.  B. 


DISTRIBUTION.  44I 

Still  in  certain  measure,  we  may  be  able  to  make  some  conces- 
sion to  the  demands  of  the  collectivists.  The  instruments  of  labor 
which  are  now  used  in  large  industry,  under  the  name  of  capital 
and  in  the  shape  of  factories,  machinery,  and  mines,  are  too  huge 
to  be  worked  by  a  single  person,  as  was  the  tool  of  the  artisan  of 
former  days ;  nay  !  they  demand  the  co-operation  of  several  hun- 
dreds, and  sometimes  of  several  thousands,  of  men.  Now,  since 
production  has  to  a  certain  extent  become  collective,  it  would  be 
rational  for  ownership  to  be  collective  in  the  same  degree.  It 
would  be  advisable  that  the  factory,  the  machines,  the  mine, 
instead  of  being  the  property  of  a  single  individual,  the  employer 
or  the  company,  should  become  the  collective  property  of  all  the 
individuals  who  co-operate  in  the  undertaking. 

This  is  the  aim  that  co-operative  societies  have  in  view,  and, 
though  difficult  to  realize,  it  is  a  perfectly  legitimate  end.  But  if 
ever  this  co-operative  system  is  actually  established,  it  will  cer- 
tainly  not  involve  the  abolition  of  all  property  in  capital ;  it  will 
only  transfer  this  property  from  the  hands  of  capitalists  into  the 
hands  of  workmen. 

Section  2,    The  Distinction  between  Land  and  Products. 

Another  distinction  has  been  proposed  which  seems  to  be  far 
more  reasonable  :  on  one  side  it  places  all  products  —  all  movable 
goods,  if  that  legal  term  be  preferred  —  which,  by  the  mere  fact 
of  being  products,  are  necessarily  the  result  of  some  labor,  whether 
it  be  great  or  small.  The  phrase  "  movable  goods  "  unfortunately 
excludes  houses  and  other  buildings,  which  are  obviously  the  prod- 
ucts of  labor  and  should  therefore  be  included  in  this  first  class. 

On  the  other  side  is  set  the  actual  substratum  of  production,  i.e. 
land  and  mines,  which,  from  the  single  circumstance  that  it  exists 
prior  to  any  act  of  production,  can  only  be  the  work  of  nature  and 
cannot  proceed  from  the  labor  of  man.  If  we  wish  to  adhere 
faithfully  to  our  principle  that  bases  private  property  upon  labor, 
we  must  admit  the  lawfulness  of  the  right  of  property  over  this 
first  class  of  wealth,  because  such  objects  are  artificial,  but  must 


442  PRINCIPLES    OF    POLITICAL    ECONOMY. 

declare  it  to  be  unlawful  as  regards  the  second  category,  because 
the  components  of  that  class  are  natural. 

The  simplicity  and  the  logic  of  this  distinction  strongly  impress 
the  mind.  It  is  of  very  ancient  date,  for  we  shall  presently  see  that 
it  can  be  traced  back  to  the  first  beginnings  of  property ;  it  is 
highly  capable  of  application  to  the  present,  for  in  our  time  it  has 
met  with  the  approval,  not  only  of  socialists,  but  also  of  a  number 
of  contemporary  economists  and  philosophers. 

It  was  the  basis  of  the  socialistic  system  of  Colins,  who  is  now 
dead,  but  whose  school  still  exists  in  Belgium.  Henry  George  in 
America  and  A.  R.  Wallace  in  England  have  also  used  it  as  the 
groundwork  of  their  systems.  Moreover,  it  has  been  adopted, 
though  with  some  reservation,  by  Messrs.  Herbert  Spencer,  De 
Laveleye,  Walras,  and  Secr^tan.  None  of  these  is  a  socialist  in  the 
popular  sense  of  the  term,  and  some  of  them  are  the  leaders  of 
the  individualist  or  liberal  school. 

But  the  optimistic  school  keenly  attacks  this  distinction,  which  is 
capable  of  powerfully  shaking  the  institution  of  landed  property. 
This  school  asserts  that  land  is  a  product  of  the  labor  of  the  agri- 
culturist in  the  same  way  as  the  clay  vessel,  which  is  fashioned  by 
the  hand  of  the  potter,  is  a  product  of  his  labor.  No  doubt  man 
has  not  created  land,  but  neither  has  he  created  potter's  clay. 
Labor  never  creates ;  its  task  is  restricted  to  modifying  the  mate- 
rials supplied  to  it  by  nature.  Now  this  modifying  action  of  labor 
is  surely  no  smaller  when  it  is  exercised  on  land  itself,  than  it  is 
when  exerted  on  the  materials  drawn  from  the  earth's  bosom. 
The  optimistic  school  refers  us  to  those  patches  of  land  which  the 
peasants  of  the  Valais  or  of  the  Pyrenees  have  literally  constructed 
on  the  slopes  of  their  mountains,  by  carrying  all  the  earth  for  that 
purpose  in  baskets  upon  their  backs.  An  ancient  author  tells  us 
how  a  peasant  was  accused  of  sorcery  because  of  the  abundant 
crops  that  he  obtained  from  his  plot  of  land,  whilst  the  neighbor- 
ing tracts  were  nothing  but  barren  heaths.  When  he  was  cited  to 
appear  before  the  Roman  praetor,  his  only  defence  was  to  show 
bis  two  arms,  and  cry,  "  Veneficia  mea  haec  sunt r''  "These  are 


DISTRIBUTION.  443 

my  only  spells !  "  To  justify  itself  against  the  attacks  of  which  it 
is  the  object,  landed  property  has  only  to  repeat  the  same  proud 
answer.     Thus  the  optimistic  school. 

Though  this  line  of  argument  certainly  contains  some  truth,  still 
that  does  not  appear  to  be  enough  to  overthrow  the  distinction 
between  land  itself  and  the  wealth  that  it  yields.  No  doubt  man- 
kind and  land  have  ever  been  bound  together  by  the  tie  of  daily 
labor,  often  labor  of  the  severest  kind,  to  express  which  the  term 
was  invented  of  laboring  with  the  sweat  of  one's  brow  {lado}-,  toil). 
But  though  land  is  the  instrument,  it  is  not  the  pt-oduct,  of  labor. 
It  exists  before  any  labor  exerted  by  man,  and  through  it  alone 
can  that  labor  become  productive.  Besides,  it  is  not  lifeless  mat- 
ter like  clay  in  the  hands  of  the  potter :  it  lives,  it  produces,  nay, 
it  labors ;  from  it  man  receives  the  great  treasure  of  natural  forces 
—  the  sun,  the  rain,  the  dew,  and,  in  particular,  the  situation, 
which  we  have  already  seen  to  be  the  condition  indispensable  for 
all  production.  Why,  then,  should  not  land  possess  a  value  and  a 
utility  which  are  independent  of  all  human  labor? 

We  grant  that  by  his  labor  man  daily  improves  and  modifies  this 
wonderful  instrument  of  production  with  which  nature  has  supplied 
him,  for  the  purpose  of  better  adapting  it  to  his  own  ends,  and 
thus  he  clearly  confers  on  it  a  new  utility  and  a  new  value.  But 
the  primitive  value  of  the  ground  can  still  be  easily  observed 
beneath  the  accumulated  strata  of  human  labor. 

This  is  discerned  by  the  naked  eye  in  the  forest  which  has  not 
yet  been  cleared,  and  the  prairie  which  is  still  uncultivated.  Yet 
these  can  be  sold  or  let  at  a  high  price  and  at  a  high  rental.  It  is 
visible  in  the  tracts  of  sandy  shore  in  the  neighborhood  of  Aigues- 
Mortes  at  the  mouth  of  the  Rhone,  which  had  only  been  ploughed 
by  the  sea-breeze  ;  yet  the  fortunes  of  their  lucky  possessors  were 
made  when  it  was  discovered  by  chance  that  on  such  spots  vines 
could  be  planted  which  escaped  the  phylloxera.  Again,  it  can 
be  perceived  in  building-sites  in  large  towns  which  have  never 
felt  the  plough,  but  the  value  of  which  is  far  higher  than  that 
of  any  cultivated  land. 


/\/\/\  PRINCIPLES    OF    POLITICAL    ECONOMY. 

When  the  school  of  Bastiat  attempts  to  show  that  the  value  of 
land  proceeds  solely  from  labor,  it  lays  stress  on  the  circumstance 
that  where  land  is  virgin  soil,  as  in  portions  of  America,  it  is  value- 
less. The  statement  is  correct,  but  the  argument  derived  from  it 
does  not  prove  anything.  The  worthlessness  of  lands  on  the  banks 
of  the  Amazon  does  not  arise  from  their  being  virgin  soil,  but  from 
their  being  situated  in  a  desert ;  and,  where  no  men  exist  to  utilize 
things,  the  very  notion  of  wealth  vanishes. 

It  is  obvious  that  land  was  valueless  until  the  first  man  appeared 
upon  its  surface,  and  to  that  condition  it  will  return  when  the  last 
of  our  race  has  disappeared.  Virginity  of  the  soil  has  nothing  to 
do  with  the  matter.  Here  is  a  proof  of  it :  if  these  tracts  on  the 
Amazon  could  by  the  stroke  of  some  magic  wand  be  transported 
to  the  banks  of  the  Seine,  their  present  condition  being  unchanged 
and  their  virginity  left  intact,  they  would  probably  be  of  as  high  a 
value  as  the  oldest  estates  in  France,  in  spite  of  the  marks  that 
the  latter  bear  of  the  labor  of  a  hundred  generations. 

If  this  hypothesis  seems  to  be  too  extravagant,  let  us  take  any 
chance  plot  of  land  in  France  and  suppose  it  to  be  abandoned  for 
a  hundred  years,  till  all  traces  of  man's  labor  have  been  effaced 
and  nature  has  given  it  a  new  virginity.  Shall  we  be  told  that  then 
that  land  will  have  lost  all  value,  that  neither  a  farmer  nor  a  pur- 
chaser will  be  forthcoming  for  it  ?  Surely  not ;  on  the  contrary, 
we  may  safely  wager  that,  though  it  has  been  left  in  such  a  state, 
that  land,  a  hundred  years  hence,  will  be  far  more  valuable  than  it 
is  to-day. 

This  natural  value  of  the  ground,  again,  is  plainly  visible  in  the 
case  of  cultivated  areas,  and  is  shown  by  the  unecjual  fertility  of 
land.  Thus  two  plots  may  have  been  the  object  of  equal  labor 
and  of  equal  expenditure,  but  one  of  them  may  be  worth  a  fortune 
while  the  other  may  not  be  worth  a  farthing.  It  also  appears,  as 
will  be  seen  later  on,  in  the  unearned  increment  which  land 
receives  independently  of  human  labor  and  from  which  the  owner 
derives  an  income  which  constantly  increases. 

We  therefore  hold  that  the  distinction  is  justified  in  principle. 


DISTRIBUTION.  445 

But  do  we  mean  by  that,  that  landed  property  is  to  be  condemned 
without  our  hearing  any  further  evidence  ?  Before  we  pronounce 
so  hasty  a  judgment,  let  us  see  how  landed  property  took  its  rise. 

IV.    The  Historical  Evolution  of  Landed  Property. 

In  modern  societies,  at  least  in  the  old  European  countries, 
private  property  extends  over  almost  the  entire  surface  of  the 
land.  Not  only  has  this  appropriation  been  sanctioned  by  all  sys- 
tems of  legislation,  but,  moreover,  current  opinion  has  come  to 
regard  it  as  the  type  of  property.  When  we  speak  of  "  property  " 
without  using  any  qualifying  term,  we  are  always  understood  to 
mean  landed  property. 

But  the  numerous  researches  which  have  been  made,  especially 
of  late  years,  justify  us  in  holding  that  it  has  now  been  proved  that 
landed  property  is  an  institution  of  relatively  recent  date.  We 
learn  that  it  was  unknown  in  the  earliest  phases  of  civihzation,  and 
that  its  formation  was  a  matter  of  great  difficulty.  For  long  years 
men  were  cognizant  of  no  other  private  property  than  that  which 
related  to  movable  goods  and  to  houses,  for  those  were  the  only 
articles  which  could  be  regarded  as  the  product  of  individual 
labor. 

As  Herbert  Spencer  says  {^Principles  of  Sociology,  Vol.  II,  page 
635,  1882  edition)  :  "  Records  of  the  civilized  show  that  with  them 
in  the  far  past,  as  at  present  with  the  uncivilized,  private  posses- 
sion, beginning  with  movables,  extends  itself  to  immovables  only 
under  certain  conditions.  We  have  evidence  of  this  in  the  fact 
mentioned  by  Meyer,  that '  the  Hebrew  language  has  no  expression 
for  landed  property ' ;  and  again  in  the  fact  alleged  by  Mommsen 
of  the  Romans,  that '  the  idea  of  property  was  primarily  associated, 
not  with  immovable  estate,  but  with  "  estate  in  slaves  and  cattle  " 
{familia  pecuniaque) .' "  Compare  the  etymology  of  the  word 
"  mancipatio,"  which  evidently  refers  to  movable  goods. 

Six  successive  stages  can  be  observed  in  the  evolution  of  landed 
property,  and  these  we  propose  to  briefly  indicate ;  but  we  must 


446  PRINCIPLES    OF    POLITICAL    ECONOMY. 

not  be  understood  to  mean  that  at  all  times  and  in  all  places 
property  has  assumed  each  of  these  shapes  in  succession. 

Firstly.  It  is  obvious  that  landed  property  cannot  arise  in  a 
society  which  lives  by  the  produce  of  the  chase,  or  among  pas- 
toral races  who  lead  a  nomadic  existence.  Agriculture  is  a  prior 
condition.  Even  in  the  earliest  phases  of  agricultural  life  landed 
property  is  not  yet  instituted.  In  those  days  land  is  over-plenti- 
ful, and  no  one  experiences  the  need  of  marking  off  his  share ; 
moreover,  agricultural  methods  are  then  in  the  embryonic  stage, 
and  the  cultivator  leaves  his  field  as  soon  as  it  is  exhausted  and 
takes  another  one.  The  land  is  cultivated  in  common,  or  at  least 
promiscuously ;  it  belongs  to  the  society  as  a  whole,  or  rather  to 
the  tribe.     The  fruits  of  the  land  are  all  that  the  producer  obtains. 

Secondly.  Gradually  the  population  becomes  more  sedentary 
and  settles  more  firmly  on  the  land.  It  also  grows  denser  and 
feels  the  necessity  of  resorting  to  a  more  productive  method  of 
cultivation.  Thus  the  first  stage  is  supplanted  by  a  second  phase ; 
namely,  temporary  possession  together  with  periodical  divisions. 

Arva  per  atinos  mutant,  "  they  change  their  land  yearly,"  is 
the  famous  phrase  used  by  Tacitus  when  speaking  of  the  ancient 
Germans.^  But  of  late  years  the  meaning  of  the  sentence  has 
been  contested,  and  a  new  and  somewhat  paradoxical  translation 
has  been  proposed  ;  viz.  "  they  change  their  rotation  of  crops 
yearly."  This  system  of  the  tribe  holding  the  land  as  its  collec- 
tive property  is  still  to  be  met  with  in  the  arch  of  the  indigenous 
tribes  of  Algeria. 

Though  the  land  is  still  regarded  as  belonging  to  the  society, 
it  is  equally  divided  among  the  heads  of  families,  not  as  yet 
definitively,  but  only  for  a  certain  time.  First  of  all  for  a  year,  for 
in  that  is  comprised  the  ordinary  cycle  of  agricultural  operations. 
Then,  as  methods  of  husbandry  improve  and  cultivators  require  a 
longer  space  of  time  for  the  accomplishment  and  fruition  of  their 

1  Tacitus,  Geymania,  ch.  26.  The  interpretation  of  the  passage  is  fully 
discussed  in  Dr.  W.  Cunningham's  Growth  of  English  Industry  and  Commerce, 
2d  cd.,  1890.  —  J.  D. 


DISTRIBUTION.  447 

labors,  the  division  is  gradually  allowed  to  hold  good  for  more 
and  more  lengthy  periods.  This  plan  of  periodical  division  is 
still  extant  in  Russia,  and  is  well  known  as  the  iiiir.  This  mir,  the 
community  composed  of  the  dwellers  in  each  village,  is  the  pos- 
sessor of  the  land,  and  distributes  it  amongst  its  members  by 
divisions  which  are  usually  biennial,  but  the  periodicity  varies 
iTom  one  parish  to  another.  The  territory  of  the  parish  is  of  three 
kinds  :  the  land  which  has  been  built  over  together  with  the 
gardens  which  constitute  the  hereditary  property  of  the  parish ; 
this  is  not  subjected  to  division.  The  two  other  classes,  the 
arable  land  and  the  meadow-land,  are  periodically  divided  into 
portions  which  are  as  equal  as  the  number  of  inhabitants  will 
allow.  The  assembly  formed  by  the  heads  of  families,  the  mir, 
has  sovereign  power  over  the  distribution  of  the  respective  shares 
and  the  fit  cropping.  Further  details  can  be  found  in  M.  Anatole 
Leroy-Beaulieu's  La  Riissie  and  M.  de  Laveleye's  La  Propricie. 
It  has  been  maintained  that  these  Russian  village  communities 
are  tending  to  abandon  this  system  in  favor  of  the  institution  of 
private  property.  But  the  assertion  has  been  by  no  means  proved. 
Thirdly.  At  last  a  time  comes  when  these  periodical  divisions 
fall  into  disuse,  for  skilful  cultivators  do  not  readily  agree  to  an 
arrangement  which  periodically  deprives  them  of  the  fruits  of 
their  labor  in  the  interests  of  the  whole  community.  Thus  we 
arrive  at  proprietorship  of  the  family  as  a  whole,  each  family 
becoming  henceforward  the  proprietor  of  its  own  portion.  But 
private  property  is  not  yet  established,  for  the  right  of  disposal  is 
still  non-existent.  The  head  of  the  family  can  neither  sell  the 
land,  nor  give  it  away,  nor  dispose  of  it  after  his  death,  for  it  is 
held  to  be  a  collective  estate,  and  not  a  private  property.  This 
system  can  even  now  be  observed  in  the  family  communities  of 
Eastern  Europe,  especially  among  the  Zadrugas  of  Bulgaria  and 
Croatia,  which  consist  of  between  fifty  and  sixty  persons.  But 
they  are  now  somewhat  rapidly  disappearing  in  consequence  of 
the  spirit  of  independence  manifested  by  the  younger  members 
of  the  family.     (See  M.  de  Laveleye's  article  in  the  Revue  d'Eco- 


448  PRINCIPLES    OF    POLITICAL    ECONOMY. 

nomie  politique  iox  August,  1888,  entitled  "  Les  communaut^s  de 
famille  et  de  village.") 

Fourthly.  The  history  of  the  evolution  of  landed  property 
would  be  gravely  incomplete,  were  we  not  to  take  into  account  a 
circumstance  which,  though  it  seems  of  the  nature  of  an  accident, 
has  unfortunately  occurred  in  the  evolution  of  all  human  societies. 
I  refer  to  conquest.  There  is  probably  not  a  single  territory  that 
has  not,  at  some  time  or  other,  been  taken  away  by  force  from  the 
people  that  occupied  it  and  been  appropriated  by  the  conquering 
race.  As  a  proof  of  the  influence  conquest  has  had  upon  the 
evolution  of  landed  property,  Herbert  Spencer  makes  the  following 
interesting  remark.  The  regions  in  which  the  ancient  forms  of 
collective  property  have  been  the  best  preserved,  are  precisely 
those  poor  and  mountainous  localities  whose  very  situation  has 
insured  them  against  conquest. 

The  conquerors,  for  their  part,  in  virtue  of  their  position  as  vic- 
tors and  masters,  have  not  troubled  to  cultivate  the  land,  have 
merely  assumed  the  legal  ownership,  the  "  superior  lordship,"  as 
it  used  to  be  called,  and  have  left  the  subjected  people  in  posses- 
sion of  the  soil  by  what  is  called  tenure.  This  tenure  was  more  or 
less  akin  to  actual  ownership,  but  was  always  limited  by  the  con- 
ditions of  the  concession  made  to  the  cultivator,  by  the  ser\'itudes 
which  weighed  heavily  upon  him,  by  the  dues  he  was  bound  to 
pay  to  his  overlord,  and  by  the  impossibility  of  alienating  the 
land  without  the  authority  of  his  superior.  For  several  centuries 
this  "  feudal  system  "  was  the  foundation  of  the  social  and  political 
constitution  of  Europe,  and  is  still  to  be  met  with  in  several  coun- 
tries, notably  in  England.  In  that  country  much  property,  theo- 
retically at  least,  is  held  in  the  form  of  a  tenure  as  copyhold  and 
is  still  shackled  by  a  number  of  restrictions  (entails,  settlements, 
etc.),  which  it  experiences  great  difficulty  in  shaking  off.  As 
Blackstone  says,  thus  was  established  in  English  law  the  cardinal 
maxim  with  regard  to  possession  of  land  :  the  king  is  the  only 
master  and  the  original  owner  of  all  the  land  in  the  kingdom. 

Fifthly.    The  development  of  individualism  and  of  civil  equality 


DISTRIBUTION.  449 

and  the  abolition  of  the  feudal  system,  particularly  in  those  coun- 
tries which  have  felt  the  influence  of  the  French  Revolution,  have 
led  to  a  fifth  stage,  which  has  been  realized  in  our  times  ;  namely, 
the  definitive  institution  oi freehold  landed  property,  together  with 
all  the  attributes  involved  in  the  rights  of  property. 

But  this  landed  property,  for  example,  as  it  is  set  forth  in  the 
Code  Napoleon,  is  not  yet  altogether  identical  with  personal  prop- 
erty. It  possesses  numerous  differentiating  characteristics  which 
are  well  known  to  lawyers,  and  are  especially  marked  by  the  various 
degrees  of  difficulty  to  which  the  rights  of  alienation  and  acquisi- 
tion are  subjected.  Sufficient  instances  are  the  inalienability  of 
the  immovable  estate  of  women  married  under  the  dowry  system, 
the  formalities  required  for  the  transfer  of  real  estate,  and  the 
enormous  succession  duties  which  are  levied  for  change  of  owners. 

Sixthly.  Thus  only  one  step  further  was  required  for  the  com- 
plete assimilation  of  landed  property  and  personal  property,  and 
for  the  reaching  of  the  last  term  in  this  evolution.  This  was  the 
mobilization  of  landed  property,  by  which  each  individual  might  be 
enabled  not  only  to  possess  land,  but  also  to  dispose  of  it  as  easily 
as  any  article  of  personal  property.  This  final  step  was  taken  in  a 
new  country,  Australia,  by  the  institution  of  the  celebrated  Torrens 
System.  By  this  the  owner  of  real  estate  is  able,  as  it  were,  to 
docket  his  land  in  the  shape  of  a  sheet  of  paper,  and  to  transfer  it 
from  one  person  to  another  with  the  same  ease  as  if  it  were  a  bank 
note,  or  at  least  a  bill  of  exchange. 

In  the  author's  Etude  siir  VAct  Torrens  (1886),  full  details  are 
given  as  to  the  Torrens  Act,  which  is  named  after  the  statesman 
who  caused  its  adoption  in  New  South  Wales  about  forty  years 
ago.  It  has  two  essential  features.  The  first  is  a  register  similar 
to  the  French  civil  register ;  in  this  each  real  possession  has 
its  own  page,  which  is  devoted  to  its  plan  and  its  specification ; 
on  the  page,  too,  is  related  (as  far  as  possible)  the  history  of  the 
realty  from  the  date  of  its  entrance  into  the  domain  of  pri- 
vate property.  The  second  is  a  title-deed,  which  is  a  fac-simile, 
sometimes  even  a  photographic  reproduction,  of  the  leaf  in  the 


450  PRINCIPLES    OF    POLITICAL    ECONOMY. 

register.  When  this  has  been  handed  over  to  the  owner,  it  abso- 
lutely stands  for  the  realty  itself,  and  can  in  its  turn  be  yielded 
to  others,  given  as  security,  and  so  forth. 

As  Torrens  himself  said,  the  object  of  this  system  was  to  rid 
landed  property  of  all  the  barriers  that  prevented  free  access  to  it, 
"  like  the  portcullis,  drawbridge,  and  moats  which  used  to  defend 
the  approach  to  the  castles  of  our  ancestors."  The  system  was 
adopted  in  turn  in  all  the  Australian  colonies  and  in  some  other 
English  colonies,  has  lately  been  tried  in  Tunis,  and  is  to  be 
attempted  in  Brazil.  Various  legislative  endeavors  to  introduce 
it  into  England  have  hitherto  proved  unsuccessful.^ 

Our  review  of  the  history  of  landed  property  might  seem  to  justify 
us  in  drawing  this  final  conclusion  ;  the  reign  of  collective  property 
has  passed  away  forever,  for  we  see  the  institution  of  property  grow- 
ing more  and  more  distant  from  that  early  stage  and  constantly  mov- 
ing in  a  diametrically  opposite  direction.  However,  the  future  may 
belie  that  conclusion.  It  is  not  impossible  that  the  evolution  of 
landed  property  may  have  in  store  for  us  the  same  surprise  as  we 
have  experienced  from  the  study  of  the  evolution  of  other  institu- 
tions, e.g.  a  money  and  a  mercantile  class ;  there  may  be  some 
right-about-face  movement  which  may  bring  our  institution  back 
to  a  spot  not  very  distant  from  its  starting-point.  We  may  note 
that  precisely  the  same  predictions  as  ours  have  been  set  forth 
by  Herbert  Spencer,  who  has  traced  the  history  of  landed  property 
in  a  masterly  manner,  and  who  is  one  of  the  leaders,  or  rather  Ir- 
reconcilables,  of  the  individualist  school ;  for  on  pages  643,  644,  of 
the  second  volume  of  his  Principles  0/  Sociology,  we  read  :  "  So  it 
seems  possible  that  the  primitive  ownership  of  land  by  the  com- 
munity, which,  with  the  development  of  coercive  institutions, 
lapsed  in  large  measure  or  wholly  into  private  ownership,  will  be 
revived  as  industrialism  further  develops." 

^  Further  references  to  the  Torrens  Act  may  he  found  in  the  Bulletin  tie  la 
SociHe  de  Legislation  Comparee,  and  in  the  Revite  iV Economic  politique,  June, 
1890,  "  Le  Systume  Torrens  en  Angletcrre,"  by  Charles  Fortescue  Erickdale. 
—  Author^ s  Note. 


DISTRIBUTION.  451 

V.    The  Legitimacy  of  Landed  Property. 

We  have  now  traced  the  course  of  landed  property ;  we  have 
seen  it  gradually  unfoldin'g  itself  from  the  primitive  community 
and  taking  the  shape  of  free  private  property  in  ever-increasing 
likeness  to  personal  property ;  and  we  have  observed  how  its  suc- 
cessive transformations  have  followed  in  the  wake  of  the  progress 
of  agriculture  and  the  development  of  civilization.  It  will  now  be 
easy  to  determine  the  economic  causes  which  have,  so  to  speak, 
necessitated  this  establishment  of  landed  property. 

One  active  force  is  the  increase  of  population,  which  has  com- 
pelled mankind  to  practise  more  intensive  cultivation  in  order  to 
obtain  from  the  earth  a  larger  and  larger  supply  of  articles  of  sub- 
sistence.^ In  Canada  it  has  been  observed  that  the  native  races 
who  live  by  the  chase  require  the  enormous  area  of  fifteen  square 
miles  per  head  so  that  each  man  may  continue  to  exist.  Below 
this  hmit  they  are  decimated  by  famine.  But  agriculture,  as  it  is 
practised  in  Western  Europe,  can  support  from  four  to  five  thou- 
sand times  more. 

Secondly,  to  stimulate  labor  it  is  necessary  to  guarantee  the  cul- 
tivator a  right  not  only  over  the  produce  of  his  land,  but  also  over 
the  land  itself,  as  the  instrument  of  his  labor.  This  right  is  tem- 
porary at  first,  but  it  is  continued  longer  and  longer  as  the  prog- 
ress of  agriculture  requires  labor  of  longer  duration,  and  finally  it 
becomes  perpetual. 

The  right  to  the  fruits  of  the  earth  carries  with  it  the  right  to 
the  earth  itself,  at  least  for  a  certain  period.  The  man  who  has 
sown  the  seed  must  be  given  time  to  reap  the  harvest.  The  planter 
of  vines  must  wait  six  or  seven  years  for  his  first  vintage  ;  half  a 
century  must  elapse  before  the  sower  of  the  acorn  can  cut  the  oak. 
Moreover,  even  yearly  cropping,  if  at  all  advanced  in  method, 
requires  certain  labors  (such  as  manuring,  improvements  of  the 
soil,  drainage,  and  irrigation),  which  can  only  be  recouped  by  the 

^  This  aspect  of  the  increase  of  population  was  first  fully  treated  by  Mal- 
thus.  — J.  B. 


452  PRINCIPLES    OF    POLITICAL    ECONOMY. 

successiv^e  crops  of  ten,  twenty,  or  even  fifty  years.  The  man  who 
has  performed  such  labors  must  be  allowed  the  possibility  of  repay- 
ing himself;  otherwise  it  is  certain  that  he  will  relinciuish  them. 

Still  we  may  ask  if  it  was  really  necessary  to  grant  perpetuity  to 
landed  property.  It  was  not  indispensable  for  the  successful  culti- 
vation of  the  soil ;  for  surely  man,  the  creature  of  a  day,  does  not 
require  all  eternity  for  the  execution  of  the  largest  labors.  This  is 
shown  by  the  fact  that  such  enormous  undertakings  as  the  cutting 
of  the  railways  and  the  canals  at  Suez  and  at  Panama  rest  only  on 
concessions  for  ninety-nine  years. 

It  is  true  that  the  logic  of  the  right  of  property  should  lead  to 
this  consequence,  for  the  rights  of  property  last  as  long  as  the 
object  possessed,  and  in  this  case  the  object  is  of  perpetual  dura- 
tion. Of  all  wealth  land  alone  holds  this  privilege ;  time,  the 
destroyer  of  all  things,  tempus  edax  rerutti,  lays  his  hand  on  the 
earth  only  to  give  her  a  new  youth  with  each  returning  spring.  As 
we  shall  see  shortly,  the  extension  of  this  perpetuity  from  the 
object  to  the  right  itself  involves  some  troublesome  consequences. 

Besides  the  economical  it  is  obvious  that  other  causes,  some 
poUtical,  some  moral,  some  even  religious  in  origin,  have  presided 
over  the  genesis  of  landed  property,  and  may  even  now,  in  a 
certain  degree,  be  called  to  testify  in  its  favor ;  but  in  this  place 
we  have  only  to  deal  with  economical  causes.  Have  those  two 
causes,  which  led  to  the  creation  in  the  past  of  private  property 
in  land,  now  lost  their  power  of  defending  it  against  the  attacks 
of  its  adversaries?     We  think  not. 

For,  given  on  the  one  hand  the  more  or  less  rapid  but  continu- 
ous increase  in  population,  and  on  the  other  hand  the  insufficiency 
of  the  production  of  wealth,  which  we  have  so  often  observed,  it 
is  as  necessary  now  as  it  was  in  early  days  to  choose  the  mode  of 
cultivating  the  land  which  shall  allow  of  the  nourishment  of  the 
largest  possible  number  of  men  upon  any  given  area.  In  our 
opinion  private  property  best  satisfies  that  need. 

It  is  useless  for  the  collectivists  to  tell  us  that  the  collective 
proprietorship  of  land  would  now  give  far  better  results  than  those 


DISTRIBUTION.  453 

obtained  by  private  property,  in  consequence  of  that  system  alone 
enabling  us  to  employ  the  methods  of  large  production  and  to 
reap  all  their  advantages.  We  have  already  seen  that  we  must 
not  expect  from  large  production  in  agriculture  the  same  advan- 
tages as  it  gives  in  manufacturing  industry.  It  effects  a  reduction 
in  general  expenses,  but  it  also  produces  a  smaller  quantity  of 
articles  required  for  our  subsistence :  now  what  we  especially 
desire  to  obtain  from  the  earth  is  the  greatest  possible  amount  of 
gross  produce. 

A  further  question  is  the  organization  of  this  cultivation  of  the 
land  under  the  system  of  collective  ownership.  On  this  point 
the  collectivists  are  far  from  being  of  one  mind.  If  this  task  is 
to  fall  to  the  lot  of  the  State  or  of  the  various  communes  or 
parishes,  we  must  confess  that  the  results  heretofore  obtained  in 
the  few  cases  of  which  we  are  able  to  judge  have  scarcely  been 
encouraging.  We  refer  to  State  forestry  and  State  railways,  and  to 
the  administration  of  public  land.  The  value  of  the  state  forests 
in  France  is  estimated  to  be  ^50,500,000,  but  the  net  returns 
are  scarcely  ;;^48o,ooo,  or  rather  less  than  one  per  cent.  Though 
the  cost  of  the  French  State  railways  was  ;^3 2, 000,000,  the  net 
returns  have  been  rather  less  than  ;i/^i  60,000,  or  slightly  under 
one-half  per  cent.  But  to  be  candid,  we  must  admit  that  in  some 
countries,  in  Germany  in  particular,  State  property  has  yielded  a 
much  higher  income. 

If  we  were  to  abide,  then,  by  strict  logic,  land  ought  to  belong 
to  society ;  but,  as  society  as  a  whole  cannot  turn  it  to  the  best 
use,  it  concedes  it  to  individual  persons,  and  commissions  them 
to  cultivate  it  for  the  further  benefit  of  all.  Thus  we  regard 
landed  property  as  based  less  upon  natural  rights  than  on  civil 
law,  —  not  on  a  principle  of  abstract  justice,  but  on  public  utility. 
This  distinction  between  landed  property  and  personal  property 
is  excellently  shown  in  the  new  Servian  Code  in  the  following 
clauses :  "  The  right  of  property  over  products  and  movables 
acquired  by  human  exertion  is  based  on  Nature  herself  and  is 
estabHshed  by  natural  laws"  ;  "The  right  of  property  over  realty 


454  PRINCIPLES    OF    POLITICAL    ECONOMY. 

and  soil,  whether  cultivated  or  uncultivated,  is  confirmed  by  the 
constitution  of  the  country  and  by  civil  laws." 

Still  we  may  ask  whether  landed  proprietorship  has  not  grown  to 
an  excessive  and  mischievous  extent  in  thus  absorbing  almost  the 
whole  of  the  land  of  a  country,  and  whether  it  would  not  have 
been  more  rational  to  limit  it  according  to  the  spread  of  the 
cultivation  of  the  earth,  since  that  is  the  only  title  which  we 
grant  it? 

Our  views  as  to  the  limitation  of  landed  property  to  land  under 
cultivation  happen  to  coincide  with  the  Mussulman  law.  In  this 
respect  that  system  is  more  rational  than  the  legislation  which  is 
derived  from  the  Roman  Law.  It  restricts  private  property  to  such 
land  as  has  been  the  object  of  effective  labor,  and  this  it  terms 
livi7ig  land  in  contradistinction  to  uncultivated  land  or  dead  land 
which  should  continue  to  be  collective  property.  "When  any 
man  has  put  life  into  dead  land,  says  the  prophet,  it  shall  belong 
to  none  other,  and  he  shall  have  exclusive  right  over  it."  The 
following  are  the  labors  which  are  thus  to  transfer  land  to  private 
ownership  :  "  To  cause  water  to  flow  as  a  spring  either  for  drinking 
or  for  watering  the  fields  ;  to  divert  water  from  submerged  tracts  ; 
to  build  upon  uncultivated  ground  ;  to  make  a  plantation  thereon  ; 
to  break  it  up  by  tillage ;  to  clear  away  the  undergrowth  which 
renders  it  unfit  for  cultivation ;  to  level  the  ground  and  remove 
stones  therefrom."  By  the  application  of  these  principles  in  Algeria 
and  Java,  collective  property  in  those  countries  is  even  now  of 
great  importance.  In  France  there  are  50,000,000  acres  of  land 
of  this  description  (two-fifths  of  the  whole  area  of  France),  but 
only  15,000,000  acres  of  this  land  still  belong  to  the  State  or  the 
various  parishes.  All  the  rest  has  been  swallowed  up  by  private 
proprietors. 

There  are  grave  disadvantages,  which  have  been  more  than 
once  pointed  out,  in  the  absorption  by  private  proprietors  of  such 
collective  property  as  public  lands,  woods,  and  pasture  land.  No 
doubt,  as  this  early  shape  of  collective  property  tends  to  disappear, 
our  present  societies  witness  the  growth  and  development  of  an 


DISTRIBUTION.  455 

even  larger  form  of  collective  property ;  viz.  railways  belonging  to 
the  State,  and  gas,  water,  and  tramway  enterprises  which  are  carried 
on  by  municipalities.  But  the  new  does  not  compensate  for  the 
loss  of  the  old  form. 

VI.    The  Law  of  Ground  Rent. 

Landed  property  seems  to  consist  wholly  of  advantages,  and  to 
be  altogether  free  from  disadvantages,  when  we  observe  it  at  its 
commencement  and  in  its  early  stages,  as  may  now  be  witnessed 
on  the  pampas  of  the  Argentine  Republic  or  in  Australia.  Hence 
it  is  that  its  institution  is  so  easy.  Since  it  only  refers  to  lands 
that  have  already  been  cleared,  and  extends  pari  passu  with  the 
spread  of  cultivation,  it  appears  to  be  sanctified  by  labor.  A*- 
this  stage  it  occupies  but  a  small  portion  of  the  soil,  and  land  is 
still  over-plentiful ;  hence  no  monopoly  is  associated  with  its  exist- 
ence, and  the  law  of  competition  holds  good  as  with  all  other 
undertakings. 

But,  when  the  society  develops,  and  population  becomes  denser, 
a  change  comes  over  the  character  of  landed  property.  It  gradu- 
ally assumes  the  appearance  of  a  monopoly  which  continues  to 
increase  without  hmit,  giving  great  gains  to  the  owners  of  land, 
but  doing  great  injury  to  society  as  a  whole. 

This  evolution  was  first  expounded  by  Ricardo,'  in  that  profound 
theory  which  gave  him  fame,  and  has  for  half  a  century  furnished 
a  staple  for  the  discussions  of  all  economists. 

Originally,  says  Ricardo,  as  men  were  only  obliged  to  put  a 
small  quantity  of  land  under,  cultivation,  they  chose  the  best  plots. 
Still,  in  spite  of  the  fertility  of  this  land,  the  holders  do  not  receive 
from  their  cultivation  a  higher  return  than  they  could  obtain  from 
any  other  employment  of  their  labor  and  capital.  For,  as  \here  is 
still  other  land,  the  law  of  competition  comes  into  effect,  and 
brings  down  to  the  cost  price  the  value  of  the  produce  even  of 
this  most  fertile  land. 

^  Anderson  and  Malthus  preceded  him  in  teaching  the  received  theory  of 
Rent.     Ricardo  himself  acknowledges  his  debt  t<i  the  latter.  —  J.  B. 


45^  PRINCIPLES    OF    POLITICAL    ECONOMY.      ' 

But  a  time  comes  when  increase  of  population  necessitates  an 
increase  of  production,  and  as  land  of  the  first  class  has  been 
appropriated  in  its  entirety,  less  fertile  land  has  to  be  put  under 
cultivation ;  i.e.  land  on  which  the  cost  of  production  is  higher. 
Let  us  suppose  that  land  of  the  first  class  yields  35  bushels  of 
wheat  per  acre,  at  an  outlay  of  ^12,  or  a  little  more  than  6  shil- 
lings a  bushel ;  then  land  of  the  second  class  will  only  produce  25 
bushels  for  the  same  expenditure,  and  the  cost  of  production  per 
bushel  will  be  more  than  9  shillings.  Now  it  is  clear  that  the 
owners  of  this  land  will  not  be  able  to  sell  their  corn  below  this 
price,  for  in  that  case  they  would  lose,  and  would  refuse  to  pro- 
duce any  more.  But  on  our  very  supposition  people  cannot  do 
without  this  land.  It  is  no  less  evident  that  owners  of  land  which 
was  occupied  first  of  all  will  not  be  so  obliging  as  to  sell  their 
corn  at  a  lower  price  than  their  neighbors.  They  too,  then,  will 
charge  9  shillings  a  bushel ;  but  as  their  corn  cost  them  only 
a  little  over  6  shillings,  as  heretofore,  they  will  therefore  realize  a 
profit  of  nearly  3  shillings  a  bushel,  or  ^5  5J.  an  acre.  It  is  this 
profit  which  is  called  rent,  both  in  Ricardo's  theory,  and  in  the 
vocabulary  of  political  economists  in  which  it  has  gained  a  place. 
By  this  is  meant  a  return  which  is  peculiar  to  landed  property, 
and  is  due  to  natural  or  social  causes  which  are  independent  of 
the  labor  or  the  expenditure  of  the  owner.  (For  a  clear  under- 
standing of  the  above  theory,  the  reader  should  turn  again  to  our 
chapter  on  the  "Effects  produced  on  Value  by  Competition.") 
Our  account  of  the  theory  clearly  shows  that  //  is  not  the  reni 
that  (ieter??iifies  the  rise  in  price,  but,  on  the  contrary,  it  is  the  rise 
in  price  that  determines  the  rent. 

At  a  later  stage,  as  population  continues  to  increase,  and  re- 
quires a  further  augmentation  of  the  means  of  sulisistence,  men 
are  obliged  to  cultivate  land  of  even  inferior  quality,  that  will  yield 
(say)  only  20  bushels  an  acre.  This  means  a  cost  price  of  12 
shillings  a  bushel,  and,  for  the  reasons  shown  above,  will  raise  in 
the  same  proportions  the  price  of  all  the  bushels  in  the  market. 
Henceforward  the  owners  of  land  occujjied  in  the  first  instance 


DISTRIBUTION.  457 

will  note  a  rise  in  their  rents  to  £,()  an  acre,  and  proprietors  of 
land  of  the  second  class  will  now  profit  by  a  rent  of  ^^7  an  acre. 
This  "  progress  of  cultivation,"  as  Ricardo  calls  it,  may  go  on 
indefinitely,  its  universal  effect  being  to  raise  the  price  of  food,  to 
the  detriment  of  consumers,  and  to  increase  rent,  to  the  benefit 
of  the  landlords,  whose  incomes  are  swollen  without  any  exertion 
on  their  part,  and  whose  prosperity  is  derived  from  the  impover- 
ishment of  the  community. 

It  has  been  objected,  Are  men  always  compelled  to  increase 
production  by  putting  new  lands  under  cultivation?  Cannot  the 
required  increase  of  production  be  effected  on  the  good  land? 
Certainly  it  can ;  but  in  virtue  of  the  law  of  disproportionate 
returns,  every  increase  of  returns  above  a  certain  limit  will  require 
a  more  than  proportionate  augmentation  of  expenditure,  and  will 
consequently  involve  a  rise  in  the  expenses  of  production.  Thus 
if  land  which  yielded  35  bushels  an  acre  for  j[^\2  is  now  required 
to  bear  70  bushels,  the  additional  quantity  may  be  obtainable,  but 
it  will  probably  be  necessary  to  spend  ;^35  to  ^40,  and  the  price 
of  each  bushel  will  therefore  rise  to  ^i  or  more.  Thus  the  final 
result  will  be  the  same.  Our  chapter  on  the  "  Law  of  Decreasing 
Returns "  should  be  read  along  with  this  account  of  Ricardo's 
theory. 

The  theory  is  now  somewhat  out  of  favor,  for  it  is  held  to  be 
too  pessimistic  both  by  economists  of  the  optimistic  school  and 
by  sociahsts.  At  the  present  day  so  much  confidence  is  felt  in 
progress  that  men  feel  it  difficult  to  believe  that  agricultural  pro- 
duction is  destined  to  go  from  good  to  bad,  and  from  bad  to 
worse.  Although  we  ourselves  have  admitted  the  law  of  dispro- 
portionate returns  which  may  at  some  future  date  justify  Ricardo's 
sinister  predictions,  we  have  expressed  the  opinion  that  that  day 
was  still  far  distant  and  might  be  almost  indefinitely  postponed. 

A  theory  which  was  exactly  the  opposite  to  Ricardo's,  and 
which  won  some  favor  in  its  day,  was  propounded  by  Carey,  the 
American  author.  His  attempt  was  to  show  that  the  progress  of 
cultivation  was  carried  out  in   precisely  the   reverse  order.     In 


458  PRINCIPLES    OF    POLITICAL    ECONOMY. 

his  opinion  the  most  fertile  lands  are  the  most  difficult  to  clear  in 
consequence  of  their  very  fecundity,  which  takes  the  shape  of 
exuberant  vegetation  and  huge  forests  and  marshes  with  the  con- 
comitant miasma  and  fever.  To  put  these  under  cultivation,  then, 
agriculture  will  have  to  be  equipped  with  more  powerful  weapons 
and  methods.  This  theory  is  true  for  a  budding  society :  when 
Carey  propounded  it,  it  still  held  good  for  the  United  States ; 
but  it  is  no  longer  applicable  to  the  United  States  of  to-day,  and 
centuries  ago  our  European  countries  passed  beyond  its  scope. 
No  one  but  a  man  who  had  lost  his  senses  could  now  assert  that 
in  France  or  in  England  the  most  fertile  land  was  that  which  still 
had  to  be  put  under  cultivation. 

Although  we  may  not  entirely  accept  Ricardo's  law  and  a  his- 
torical "  progress  of  cultivation,"  it  is  nevertheless  incontestable 
that  the  value  of  land  is  destined  to  increase  without  limit  in  con- 
sequence of  causes  which  have  nothing  to  do  with  the  existence 
of  any  landlord  whatever.  For  land  has  three  characteristics 
which  no  other  wealth  possesses  in  the  same  degree  :  firstly,  it 
answers  to  the  essential  and  permanent  wants  of  the  human  race ; 
secondly,  it  is  limited  in  quantity ;  thirdly,  it  lasts  forever.  From 
such  facts  we  can  easily  perceive  that  its  value  must  persistently 
tend  to  rise  in  proportion  to  social  development.  The  increase 
in  population  is  the  principal  cause  ;  for  naturally  the  more  men 
there  are,  the  greater  are  the  supplies  of  food  that  they  require 
from  the  land,  and  the  wider  the  space  they  need  for  their  abodes. 
From  the  consideration  of  this  has  been  drawn  the  somewhat  too 
sweeping  formula  that  the  value  of  all  land  is  in  direct  ratio  to 
the  number  of  men  it  bears  upon  its  surface.  Thus  it  has  been 
calculated  that  by  the  mere  fact  of  his  arrival  each  emigrant  in- 
creased by  about  $400  the  value  of  the  territory  of  the  United 
States.  As  more  than  13,000,000  emigrants  have  disembarked 
on  those  shores  since  the  beginning  of  this  century,  that  alone 
must  have  given  to  American  land  a  surplus  value  of  more  than 
$5,200,000,000. 

Other  causes  —  namely,  the  general  increase  of  wealth,  the  making 


DISTRIBUTION.  459 

of  roads  and  the  cutting  of  railways,  the  growth  of  large  towns, 
the  development  of  order  and  of  security  —  have  inevitably  con- 
tributed to  heighten  that  surplus  value  of  land  which  English 
economists  call  by  the  expressive  name  of  unearned  increment. 

Naturally  enough  this  surplus  value  of  the  earth  has  been  the 
most  strikingly  shown  in  new  countries  such  as  the  United  States, 
for  it  is  there  that  these  diverse  causes  act  with  the  greatest 
intensity.  From  the  surplus  value  of  the  land  has  sprung  the 
fabulous  fortune  of  Mr.  Potter  Palmer,  the  Chicago  millionnaire ; 
and  from  the  same  source  have  Henry  George's  theories  derived 
so  large  an  amount  of  credence.  As  was  only  to  be  supposed, 
the  surplus  value  is  less  marked  in  older  countries  where  the  pre- 
disposing causes  operate  with  less  energy,  and  where  the  increase 
in  population  has  much  abated,  as  in  France  at  the  present  day. 
Yet  agricultural  inquiries  which  were  made  in  the  years  1S51  and 
18S2  show  that  between  those  dates,  that  is  to  say  within  a  space 
of  only  thirty  years,  the  value  of  land  in  France  rose  from 
;^2, 440,000,000  sterling  to  ^3,640,000,000.  The  rent  of  land 
in  England  was  calculated  to  be  ^20,000,000  in  the  year  1800, 
and  to  be  ;^6o, 000,000  in  1880,  having  thus  been  trebled;^  in 
tlK  same  period  the  population  of  England  alone  had  likewise 
been  multiplied  by  three  :  the  figures  are  8,890,000  in  1801,  and 
24,850,000  in  1879. 

Only  one  cause  tends  to  stop  or  even  reverse  this  upward  move- 
ment of  the  value  of  land.  This  is  the  competition  of  new  coun- 
tries, which  results  from  colonization  on  a  large  scale  and  from 
great  improvements  in  the  means  of  transport.  At  the  present 
time  this  competition  has  assumed  vast  dimensions  and  has  led 
many  people  to  disbelieve  in  the  law  of  "  unearned  increment." 

Economists  of  the  optimistic  school,  those  indeed  who  hold 
that  land  is  the  product  of  labor,  are  obliged  to  protest  against  a 

1  Mr.  Giffen's  figures  are,  for  18S5,  ;,^65 ,039,000;  for  1S75,  ;!{^66,9i  1,000; 
showing  a  decrease  of  more  than  a  milHon  in  ten  years  {^Statistical  Journal, 
March,  1890).  — J.  B. 


460  PRINCIPLES    OF    POLITICAL    ECONOMY. 

doctrine  which  regards  the  landowner  as  a  sort  of  parasite  who 
monopoUzes  the  gains  of  all  social  progress.  They  do  not  try  to 
deny  the  fact  of  the  surplus  value  or  "  unearned  increment,"  for 
it  is  incontestable ;  but  they  explain  it  away  by  the  improvements 
made  and  the  expenses  incurred  by  the  landlords,  and  go  so  far 
as  to  assert  that  if  we  could  reckon  up  all  the  expenditure  accu- 
mulated by  successive  owners,  we  should  have  to  conclude  that 
there  is  no  land  whose  value  is  equal  to  what  it  has  cost. 

The  argument  is  an  attractive  one,  but  it  is  not  accurate ;  for 
statistics  show  that  land  which  has  been  the  object  of  no  labors 
of  improvement,  such  as  natural  meadows,  or,  better  still,  building 
sites,  receive  the  same  surplus  value  or  unearned  increment  as  is 
reaped  by  the  owners  of  other  kinds  of  land.  For  the  agricultural 
statistics  for  the  years  1852  and  1882  show  that  between  those 
dates  the  value  of  fields  and  grazing-lands,  in  France,  of  the 
lowest  class  rose  from  ^22  i6i'.  per  acre  to  ;!^4o  ;^s.,  a  rise  of 
about  80  per  cent ;  whereas  the  value  of  arable  land  of  the  best 
description  rose  during  the  same  period  from  ^36  los.  to  j£s4> 
or  a  rise  of  only  50  per  cent. 

No  doubt,  if  we  were  to  add  together  all  the  expenditure  made 
on  any  piece  of  French  land,  from  the  moment  when  it  was  first 
cleared  by  a  Gaul  in  the  times  of  the  Druids,  our  total  would  be 
infinitely  greater  than  the  present  value  of  the  land  ;  but  for  our 
calculations  to  be  accurate,  we  ought  also  to  add  in  all  the  crops 
yielded  from  the  same  date  onwards,  and  then  we  should  probably 
find  that  the  land  had  certainly  given  a  rent  wliich  increased 
regularly  with  the  advance  of  time. 

We  often  hear  people  say,  "  Land  only  returns  3  per  cent  or 
2^  per  cent.  That  is  not  much."  They  should  be  asked  in  turn, 
in  accordance  with  what  natural  law  is  land  bound  to  yield  them 
an  income  of  3  per  cent  a  year.  No  doubt  they  would  reply, 
"Because  we  paid  ^1000  for  our  land,  and  it  is  only  fair  that  it 
should  bring  in  ^30  a  year."  They  fail  to  see  that  that  only  begs 
the  question.  It  is  not  because  ;^iooo  has  been  paid  for  the 
land  that  it  ought  to  yield  ^30.     In  virtue  of  the  monopoly  of 


DISTRIBUTION.  46I 

landed  property  it  gives  its  possessor  a  rent  of  ^30,  and  it  is  for 
that  reason  that  ^1000  have  to  be  paid  for  it. 

VII.     The  Nationalization  of  the  Land. 

If  we  regard  as  proved  the  law  of  ground  rent  or  the  principle 
of  the  unearned  increment,  —  that  is  to  say,  if  we  believe  that  a 
great  portion,  if  not  the  whole,  of  the  value  of  land  is  due  to  social 
causes,  which  are  collective,  and  entirely  independent  of  individual 
labor,  —  we  are  naturally  tempted  to  conclude  that  it  would  be 
just  to  restore  that  portion  to  those  who  are  entitled  to  it ;  i.e. 
to  society  at  large.  For  the  attainment  of  this  end  several  meas- 
ures have  been  proposed,  which  are  usually  termed  systems  of 
land  nationalization. 

Firstly.  One  scheme  would  be  to  do  away  with  perpetuity  in 
landed  property,  and  would  make  it  resemble  what  lawyers  call 
an  emphyteusis,  or,  more  simply,  a  temporary  concession.  The 
State,  as  nominal  proprietor  of  the  land,  would  grant  it  to  indi- 
viduals for  the  purpose  of  working  it,  for  periods  of  long  duration, 
for  fifty,  seventy,  or  even  ninety-nine  years,  as  is  the  case  with 
railway  concessions.  On  the  expiration  of  the  term  the  State 
would  re-enter  in  possession  of  the  land  (as  it  will  about  the  year 
1948  for  the  French  railways),  and  would  then  grant  it  again  for 
a  fresh  period.  But  the  obtainers  of  the  new  concession  would 
now  have  to  pay  the  equivalent  of  the  surplus  value,  by  which 
they  would  benefit,  either  in  the  shape  of  a  lump  sum  or  as  an 
annual  rent.  In  this  manner  the  State,  as  the  representative  of 
collective  society,  would  receive  the  whole  of  the  unearned  incre- 
ment, which  would  sooner  or  later  bring  in  an  enormous  revenue. 

Such  a  system  would  not  be  irreconcilable  with  an  effective  cul- 
tivation of  the  land,  as  is  too  hastily  asserted,  especially  if  care 
was  taken  to  renew  the  concessions  some  time  before  the  expira- 
tion of  the  term.  Certainly  such  a  system  would  be  more  con- 
ducive to  successful  farming  than  the  actual  state  of  things  in 
countries  such  as  Ireland,  or  even  England,  where  almost  the 


462  PRINCIPLES    OF    POLITICAL    ECONOMY. 

whole  of  the  land  is  cultivated  by  tenants  at  will,  who  can  lose 
their  tenancies  at  the  landlord's  pleasure. 

The  execution  of  such  a  project  would  meet  with  an  insur- 
mountable obstacle  in  the  prior  operation  of  the  buying  back  of 
the  land,  if  that  were  done  with  due  regard  to  equity,. for  that 
operation  would  be  absolutely  ruinous.  Take  the  case  of  France. 
The  total  value  of  landed  property  in  France  may  be  estimated  to 
be  ^4,000,000,000  sterling.  Let  us  grant  that  the  purchase  could 
be  effected  at  this  price  ;  then  it  would  be  necessary  to  borrow 
that  sum.  Let  us  further  suppose  that  so  huge  an  issue  of  bonds 
would  not  damage  the  credit  of  the  State,  and  that  it  could  still 
borrow  at  4  per  cent.  Even  then  ^160,000,000  would  have  to 
be  entered  on  the  expenditure  side  of  the  accounts  of  the  State. 
On  the  other  hand,  we  should  have  henceforward  to  deduct  from 
the  receipts  all  the  taxes  that  at  present  fall  upon  land,  for  these 
would  clearly  be  wiped  out  by  confi/sio,  the  creditor  and  the 
debtor  being  one  and  the  same.  Thus  the  deficit  would  be  nearly 
;;^20o,ooo,ooo.  True  enough,  per  contra,  the  State  receipts  would 
be  increased  by  the  whole  amount  of  rents ;  but,  according  to  the 
same  statistics,  the  net  return  from  land  is  a  little  less  than  3  per 
cent.  If,  once  more,  we  grant  that  the  State  would  be  able  to 
work  the  land  as  profitably  as  private  persons  can,  the  receipts 
under  that  head  would  be  less  than  ;;^  120,000,000,  though  the 
effects  of  the  law  of  surplus  value  would  bring  about  a  progressive 
increase.  Thus,  when  all  is  said  and  done,  the  finances  of  the 
State  would  for  a  long  period  be  burdened  by  an  enormous  deficit, 
which  could  only  be  met  either  by  overwhelming  the  country  with 
taxation,  or  by  a  headlong  plunge  into  bankruptcy. 

Hence  we  can  only  seriously  think  of  resorting  to  such  a  system 
of  land-nationalization  on  the  hypothesis  that  no  purchase  need  be 
made.  This  hypothesis  is  realized  in  new  countries  which  are  not 
yet  fully  peopled,  such  as  Australia,  the  United  States,  some  of 
the  South  American  states,  and  Siberia.  Li  those  regions  the 
State  has  granted  to  colonists,  either  gratuitously  or  at  a  nominal 
figure,  the  deeds  which  guarantee  property  in  perpetuity.     But 


DISTRIBUTION.  463 

the  system  might  very  well  be  altered.  The  State  might  retain 
the  ownership  of  the  land,  and  only  concede  temporary  possession, 
which  should,  however,  be  of  sufficient  duration  to  insure  the 
opening-up  and  cultivation  of  the  holdings.  This  has  been  done 
by  the  Dutch  government  in  its  large  colonial  possessions.  It  is 
the  owner  of  the  land,  but  does  not  sell  its  estates,  merely  con- 
ceding them  for  periods  of  seventy-five  years. 

In  old  countries,  too,  this  system  might  be  adopted  with  regard 
to  mining  concessions.  Henceforth  the  State  might  make  it  a 
rule  to  assign  a  fixed  limit  to  all  new  concessions  of  mines,  say  for 
fifty  or  perhaps  ninety-nine  years,  and  to  grant  these  concessions  in 
the  future,  or  to  renew  them  when  they  expire,  by  means  of  auction 
to  the  highest  bidder.  Unearned  increment  applies  to  mines 
more  powerfully  than  to  any  other  form  of  property.  The  value 
of  the  coal-mine  concessions  in  the  Department  of  the  Pas-de- 
Calais  has  risen  from  ^1,080,000  in  1853-63,  when  they  were 
first  granted,  to  ^11,840,000  at  the  present  day.  Thus  in  thirty 
years  the  value  has  been  multiplied  by  more  than  ten. 

Secondly.  The  second  system  which  was  proposed  by  the  two 
Mills,  and  has  latterly  been  revived  by  Henry  George,^  under  the 
name  of  the  "  one-tax  "  system,  would  be  to  lay  on  landed  property 
a  progressive  tax,  the  increase  in  which  would  be  calculated  to 
absorb  the  unearned  increment  or  surplus  value  as  it  is  produced, 
and  allow  of  the  abolition  of  all  other  taxation. 

The  great  practical  objection  to  this  plan  is  that  there  are 
usually  two  elements  in  the  surplus  value  of  land  :  one  arises  from 
the  social  and  extrinsic  causes  already  set  forth,  but  the  other 
may  result  from  the  owner's  labor  and  from  the  advances  he  has 
made.  Were  we  to  establish  such  a  tax,  we  should  have  to  be 
careful  to  abstain  from  touching  this  second  element ;  not  only 

1  Similar  ideas  were  eloquently  expounded  by  Patrick  Edward  Dove.  See 
J.  W.  Sullivan's  paper  in  the  N'ew  York  Twentieth  Century  Library  (No.  12, 
1890),  with  the  question-begging  title,  "  Ideo-Kleptomania."  See,  too,  the 
author's  article  on  "  Quelques  doctrines  nouvelles  sur  la  propriete  fonciere " 
{Journal  des  Economistes,  May,  1883).  —  J.  B. 


464  PRINCIPLES    OF    POLITICAL    ECONOMY, 

for  fear  of  violating  the  principles  of  equity,  —  for  this  portion  of 
the  increment  is  the  product  of  labor,  —  but  also  for  fear  of  dis- 
couraging all  initiative  and  all  progress  in  agricultural  operations, 
which,  we  are  aware,  even  now  go  too  much  by  way  of  routine. 
Now  it  is  impossible  to  follow  out  such  a  plan. 

Still  without  resorting  to  these  extreme  measures,  the  monopoly 
of  landed  property  and  the  law  of  the  surplus  value  or  unearned 
increment  might  be  rendered  almost  harmless  were  free  access  to 
property  granted  to  all  men  and  free  circulation  of  land  insured 
by  legislation  adapted  to  such  an  end.  What  does  it  matter  if 
the  right  of  property  in  land  is  perpetual,  if  it  is  mobile  and  only 
abides  for  a  time  with  each  possessor?  Thus  the  perpetuity  of 
the  right  becomes  a  mere  phrase  (Clark,  "  Influence  de  la  terre 
sur  le  taux  des  salaires,"  Revue  iV Ecoiwmie  politique,  May-June, 
1890).     We  must  now  consider  the  means  of  effecting  this. 

VIII .     The  Organization  of  Landed  Property. 

The  organization  of  landed  property  and  the  laws  which  regu- 
late it  clearly  depend  on  our  conception  of  the  institution  of 
landed  property  itself. 

If,  as  we  hold,  the  legislator  admits  that  such  property  is  based 
on  social  utility  and  that  its  raison  d'etre  is  the  necessity  of 
obtaining  from  the  soil  the  maximum  quantity  of  articles  of  sub- 
sistence, he  must  clearly  endeavor  to  place  land  within  the  pos- 
session and  keep  it  in  the  hands  of  those  who  can  obtain  the 
largest  returns  from  it ;  i.e.  those  who  cultivate  it. 

A  school,  whose  motto  is  "  the  land  for  the  peasants,"  declares 
that  land  ought  exclusively  to  belong  to  those  who  cultivate  it 
with  their  own  hands.  That  is  too  sweeping  a  statement ;  for, 
without  himself  putting  his  hand  to  the  plough,  a  man  can  well 
enough  receive  good  returns  from  the  land,  and  can  farm  it  pro- 
ductively, at  the  same  time  cultivating  it  more  intelligently  than 
peasants  can.  Thus  it  is  wise  that  we  should  have  large  farm- 
ers to  work  side  by  side  with  peasant  proprietors,  but  only  in 


DISTRIBUTION.  46$ 

sufficient  measure  to  serve  as  an  example  and  a  stimulus.  On 
the  other  hand,  peasant  proprietorship  should  be  recommended 
as  the  general  rule.  The  following  is  our  reason  for  this  opinion. 
Large  holdings  cannot  do  without  hired  labor ;  but  in  agriculture 
hired  labor  necessitates  a  terrible  waste  of  work.  Firstly,  super- 
intendence is  far  more  difficult  than  it  is  in  a  workshop  or  factory, 
and  the  wider  the  estate,  the  greater  is  the  difficulty.  Secondly, 
the  results  of  the  work  done  by  an  agricultural  laborer  cannot 
usually  be  appraised  until  after  the  expiration  of  a  very  long  period, 
and  even  then  in  a  most  uncertain  fashion.  Thirdly,  the  industrial 
employer's  valuable  resource  of  piece-work  cannot  be  widely 
applied  in  agriculture,  for  thorough  performance  of  the  work  is  of 
more  importance  than  rapidity. 

Some  systems  of  legislation  have,  from  political  motives,  been 
employed  to  obtain  a  diametrically  opposite  result  to  what  has 
just  been  advocated ;  i.e.  to  concentrate  and  retain  landed  prop- 
erty in  the  hands  of  ruling  classes  who  govern  but  do  not  cultivate. 
Such  is  the  English  system  of  property.  Primogeniture,  entails, 
the  formahties  required  for  and  the  expenses  incurred  in  each 
alienation,  have  placed  the  proprietorship  of  almost  the  whole 
territory  of  the  British  Isles  in  the  hands  of  a  few  hundred 
families  who  compose  the  House  of  Lords.  This  system  has 
raised  up  a  wealthy  aristocracy  over  the  heads  of  the  poverty- 
stricken  people,  and  shows  the  spectacle  of  enormous  fortunes 
which  are  acquired  without  labor  and  grow,  as  it  were  spontane- 
ously, in  idle  hands.  We  do  not  deny  that  this  method  may  have 
conduced  to  the  political  greatness  of  the  British  Empire ;  but  in 
our  opinion  it  is  not  only  inequitable,  but  is  also  calculated  to 
ruin  irretrievably  the  very  institution  of  landed  property  in  the 
eyes  of  the  general  public.  Thus  nowhere  has  it  been  attacked 
more  vigorously  than  in  England.  A  proof  of  this  is  the  prodigious 
success  lately  achieved  in  England  by  Henry  George's  works  and 
his  plans  of  land  nationalization,  and  the  measures  taken  even  Dy 
the  most  Conservative  of  ministers  for  the  modification  of  the 
Irish  land  system.     There  are  estimated  to  be  about  1,200,000 


466  PRINCIPLES    OF    POLITICAL    ECONOMY, 

owners  of  land  in  the  British  Isles,  but  the  immense  majority  of 
them,  three-quarters  at  least,  only  possess  an  insignificant  area 
(less  than  an  acre,  a  small  cottage  with  a  garden  attached).  We 
can  obtain  a  more  accurate  idea  of  the  distribution  of  property 
in  the  British  Isles  if  we  recall  to  mind  that  half  of  England  and 
Wales  is  possessed  by  4500  persons,  half  of  Ireland  by  744  per- 
sons, and  half  of  Scotland  by  only  70  persons. 

The  case  is  different  in  democratic  countries,  particularly  in 
France.  There  the  laws  tend  not  to  hinder,  but  to  favor  with  all 
their  might,  the  divisibility  oi  the  land  by  means  of  the  law  of 
equal  division  amongst  all  the  heirs,  and  the  transmissibility  of 
land  by  the  prohibition  of  entails  and  the  limitations  imposed 
on  the  settlement  of  estates  held  in  mortmain.  The  result  has 
been  that  the  possession  of  part,  at  least,  of  the  land  has  been 
obtained  by  those  who  have  to  cultivate  it ;  and  hence  has  arisen 
that  vigorous  race  of  French  peasants  whom  English  economists 
regard  with  envious  eyes,  and  whose  very  existence  should  long 
serve  to  baflfle  any  attempt  to  introduce  the  collectivist  system 
into  France. 

The  total  number  of  landowners  must  be  estimated  to  be 
7,000,000  or  8,000,000.  That  of  itself  is  an  imposing  figure ; 
for  together  with  the  members  of  their  families,  these  land  pro- 
prietors probably  constitute  more  than  half  the  population  of 
France,  or  a  proportion  which  is  most  likely  higher  than  is  the 
case  in  any  other  country.  Nevertheless,  most  of  these  plots  are 
exceedingly  small. 

Various  remarks  must  be  made  as  to  the  French  laws  relating 
to  land.  Article  826  of  the  French  Civil  Code  decrees  that 
division  of  property  shall  be  not  only  equal  in  value,  but  shall  also 
be  an  equal  division  of  the  actual  ^  property  itself,  so  that  every 
estate,  whether  large  or  small,  is  mercilessly  divided  into  pieces 
on  the  owner's  death.  This  method  has  been  keenly  and  justly 
attacked,  especially  by  the  Catholic  school  and  by  Le  Play's  fol- 

^  The  French  term,  "  en  nature "  means  that  each  co-heir  shall  have  an 
equal  share  of  each  kind  of  property,  whether  real  or  personal. 


DISTRIBUTION.  467 

lowers.  It  can  be  seen  that  the  intention  of  the  law  is  to  prevent 
the  formation  of  large  estates,  both  on  political  and  on  economic 
grounds  {latifumiia  perdidere  Italiain)  ;  but,  when  in  each  gen- 
era>tion  it  violently  parcels  up  agricultural  lands,  the  peasant's  plot 
as  well  as  the  large  landowner's  estate,  and  thus  destroys  a  large 
number  of  them  by  breaking  their  unity,  it  gravely  compromises 
the  interests  of  agriculture,  without  being  able  to  plead  any  benefit 
to  the  democracy. 

The  French  law  is  also  inconsistent  in  decreeing  inalienability 
in  certain  cases ;  for  instance,  as  regards  the  real  estate  of  women 
married  under  the  dowry  system,  and  particularly  in  burdening 
the  succession  to  estates  with  enormous  government  duties,  which 
usually  amount  to  10  per  cent,  and  assume  even  higher  propor- 
tions for  small  estates. 

It  may  now  be  asked  whether  free  trade  in  land  is  the  surest 
means  of  attaining  the  end  we  have  in  view ;  namely,  the  granting 
of  proprietorship  in  land  to  those  who  can  turn  it  to  the  best 
account.  The  Liberal  school  affirms  that  this  is  the  case,  relying 
upon  the  principle  that  under  the  working  of  free  trade  articles  go 
spontaneously  into  the  hands  of  those  who  can  best  utilize  them. 
We  have  ourselves  admitted  the  truth  of  this  law. 

But  land  cannot  be  assimilated  to  any  commodity,  or  even  to 
an  instrument  of  production,  the  purchase  and  sale  of  which  are 
determined  solely  by  economic  motives.  Men  have  other  aims 
when  they  seek  to  obtain  possession  of  the  land ;  namely,  political 
power,  social  standing,  or  the  pleasures  of  a  country  life.  By  these 
motives  they  may  be  led  to  extend  their  possessions  without  why 
or  wherefore,  and,  in  particular,  to  refrain  from  selling  their  lands, 
even  when  they  can  no  longer  cultivate  them  usefully. 

Indeed,  experience  shows  us  that  in  more  than  one  instance 
free  trade  in  land  has  brought  about  the  ruin  of  small  proprietor- 
ship in  the  interests  of  large  proprietorship  or  of  speculation,  has 
taken  land  away  from  those  who  cultivated  it,  and  has  led  to  the 
creation  of  an  agricultural  proletariat.  Such  was  the  result  in 
parts  of  India  of  the  too  hasty  introduction  of  private  property, 


468  PRINCIPLES    OF    POLITICAL   ECONOMY. 

together  with  the  right  of  ahenation ;  and  the  native  population  of 
Algeria  will  certainly  be  affected  in  the  same  manner  if  the  prin- 
ciples of  the  Torrens  Act  are  there  applied  without  the  taking  of 
due  precautions.  Our  conclusion,  therefore,  must  be  that  when 
free  sale  has  not  been  sufficient  to  effect  a  distribution  of  landed 
property  which  is  in  harmony  with  the  real  aim  of  that  institution, 
the  legislator  must  interfere,  and  introduce  compulsory  modifi- 
cations. 

The  possible  methods  of  legislative  interference  are  difficult  to 
indicate  with  precision,  for  they  must  vary  according  to  circum- 
stances.    Still  \Ve  may  make  the  following  suggestions  :  — 

A  maximum  might  be  assigned  to  the  extent  of  land  that  can 
be  owned  by  any  one  man,  so  as  to  avoid  latifundia,  or  huge 
estates.  At  present  in  Scotland  one  landowner  of  himself  pos- 
sesses 1,326,000  acres. 

On  the  other  hand,  a  minimum  might  be  fixed  so  as  to  prevent 
an  excessive  subdivision  which  is  prejudicial  to  successful  farming. 
Any  landlord  who  leaves  his  land  uncultivated  might  be  expro- 
priated in  the  interests  of  the  public.^  In  China  all  land  in  that 
condition  has  to  return  into  the  possession  of  the  State,  and  in 
England  the  Radical  party  has  proposed  a  bill  for  that  purpose. 

The  exchange  of  small  portions  of  their  land  might  be  made 
compulsory  even  for  refractory  owners,  if  these  plots  are  inter- 
mingled in  too  confused  a  manner.  Such  a  provision  has  been 
adopted  in  some  of  the  German  states. 

It  might  be  declared  inadmissible  to  practise  sale  or  any  other 
form  of  transmission  with  regard  to  a  certain  extent  of  land.  Thus 
the  family  estate  would  escape  the  clutch  of  creditors.  This  insti- 
tution, under  the  name  of  the  Homestead  Lazo,  is,  as  we  have 
previously  mentioned,  in  existence  in  the  United  States. 

Finally,  farm  rents  might  be  subjected  to  certain  conditions  as 
regards  their  amount  in  money,  the  duration  of  the  tenancy,  the 

1  The  English  public  were  made  familiar  with  this  idea  liy  the  motions 
made  from  time  to  time  by  the  late  Charles  Liradlaugh  in  the  House  of  Com- 
mons.— J,  B. 


DISTRIBUTION.  469 

amounts  payable  for  the  surplus  value  or  the  unearned  increment, 
and  for  improvements  made  by  the  holders,  and  so  forth.  The 
English  government  has  been  obliged  to  interfere  in  this  fashion 
most  rigorously,  it  might  even  be  said  in  a  socialistic  manner,  with 
reference  to  the  property  of  Irish  landlords. 

Even  the  French  Civil  Code  cannot  be  said  to  be  an  example 
of  perfect  freedom  in  the  disposal  of  landed  property ;  for,  as  noted 
above,  it  decrees  a  division  of  the  land  on  each  succession  caused 
by  the  death  of  a  proprietor. 


Part  II. — The  Various  Classes  of  Sharers. 

When  we  observe  the  manner  in  which  our  fellow-men  live  and 
the  sources  whence  they  obtain  their  living,  at  first  sight  the  con- 
ditions seem  to  be  so  varied  and  so  complex  that  we  appear  to 
lose  all  our  bearings.  Still  after  a  little  thought  it  becomes  fairly- 
easy  to  distinguish  certain  great  classes,  which  we  can  recognize  by 
some  moderately  well-marked  characteristics.  There  are  as  many 
as  five  of  these  categories. 

The  first  class  comprises  peasants,  landowners,  artisans,  and 
shopkeepers,  who  possess  an  instrument  of  labor,  whether  in  the 
shape  of  land  or  of  capital,  which  they  utilize  to  advantage  by 
means  of  their  own  personal  labor.  With  them  may  be  ranked 
the  liberal  professions :  barristers,  doctors,  artists,  and  so  forth, 
who  also  live  by  their  personal  work,  by  selling  their  services 
directly  to  the  public,  and  who  always  possess  the  capital  which  is 
necessary  for  the  exercise  of  their  profession.  Their  income  is 
derived  from  what  is  usually  called  their  honorarium  or  fees. 
Unfortunately  in  the  vocabulary  of  political  economy  there  is  no 
specific  name  for  the  entire  class.  As  their  special  trait  is  to 
labor  independently  of  all  other  persons,  we  shall  call  them  aiito- 
nomous  producers.  The  particular  form  of  income  which  they 
receive  also  lacks  any  denoting  term. 

Those  of  the  second  category  possess  land  or  capital  in  too  large 
a  quantity  to  utilize  advantageously  by  their  own  personal  labor. 
They  are  therefore  obliged  to  employ  other  men's  labor.  In 
economic  language  they  are  called  employers  or  capitalists,^  in 
popular  speech  they  are  termed  mastei's,  and  their  share  receives 
the  name  oi profit. 

^  The  French  term  is  entrepreneur. 
470 


DISTRIBUTION.  4/1 

Next  come  the  proletariat :  as  their  only  property  consists  in 
their  pair  of  arms,  for  a  purpose  of  earning  a  living  they  are 
obliged  to  put  themselves  in  the  pay  of  capitalists  or  landowners, 
and  have  to  receive  from  them  the  instruments  which  are  indis- 
pensable for  production.  They  are  generally  termed  wages- 
earners  {salaries^,  or  less  definitely  workmeji.  Their  share  is 
designated  wages. 

This  class  might  include  (so  at  least  is  the  practice)  all  public 
servants  who  receive  a  salary  from  the  State,  municipalities,  com- 
munes, or  parishes,  and  so  forth.  In  France  there  are  as  many 
as  500,000  of  these,  and  the  army  contains  as  many  more.  How- 
ever, as  these  persons  are  employed  by  society  as  a  whole  and 
not  by  an  individual,  their  position,  legally  as  well  as  actually,  is 
very  distinct  from  that  of  workmen,  and  properly  speaking  they 
ought  to  be  placed  under  a  special  class. 

Domestic  servants  incontestably  fall  under  the  head  of  the 
working  classes,  and  their  income  bears  the  name  of  wages. 

A  fourth  class  consists  of  those  who  do  nothing  and  live  on  the 
particular  income  that  they  receive  from  any  form  of  capital,  land, 
houses,  or  capital  properly  so-called ;  these  various  returns  are 
called  land-rent,  house-rent,  interest,  or  dividejtd.  The  recipients 
are  termed  people  of  indepeiident  means,  or  anmiitants  {rentiers  in 
the  original). 

Besides  these  great  divisions,  there  is  another  category  which  is 
less  apparent,  but  which  cannot  escape  unnoticed  in  spite  of  the 
shadow  in  which  it  lurks.  This  contains  all  those  who  live  neither 
by  their  labor,  for  they  do  nothing,  nor  from  their  income,  for 
they  have  none,  but  solely  on  public  or  private  charity.  These 
are  called  the  indigent  or  pauper  classes,  and  what  they  live  on  is 
termed  alms. 

The  first  and  third  of  our  divisions  form  the  very  large  majority 
of  the  people  of  every  country ;  the  three  others  are  in  the 
minority. 

The  reader  may  be  surprised  to  find  no  mention  of  landowners, 
but  in  our  opinion  there  is  no  reason  to  make  them  into  a  distinct 


472  PRINCIPLES    OF    POLITICAL    ECONOMY. 

class.  The  peasant  proprietor  ranks  as  an  autonomous  producer, 
the  landowner  who  works  his  estate  for  a  profit  is  a  master  or 
employer,  the  owner  who  lets  out  his  land  in  farms  is  of  the 
annuitant  class.  The  usual  practice  of  putting  under  the  same 
heading  social  conditions  which  are  so  entirely  different,  is  con- 
trary to  all  scientific  principles  of  classification. 

We  are  often  told  that  there  are  no  classes  nowadays ;  it  would 
be  better  if  we  were  to  say  more  modestly  that  there  are  no  longer 
any  castes.     The  latter  statement  is  true  for  two  reasons. 

Firstly.  There  is  no  legal  obstacle  that  prevents  a  man  from 
passing  from  one  class  to  another,  if  he  is  able  to  do  so ;  as  a 
matter  of  fact,  there  are  people  who  rise  from  being  wages-earners 
into  the  class  of  autonomous  producers,  of  masters,  or  even  of 
annuitants.  Moreover,  there  are  others  who  fall  down  into  the 
indigent  class. 

Secondly.  The  same  person  can  very  well  belong  to  several 
classes  simultaneously,  and  such  a  state  of  things  is  exceedingly 
common.  Many  small  producers,  most  masters,  and  even  some 
wages-earners  possess  a  large  or  small  amount  of  stock  and 
municipal  or  railway  debentures,  and  in  that  respect  can  be  ranked 
as  annuitants.  Again,  many  wage-receivers  obtain  public  relief 
and  therefore  also  belong  to  the  indigent  or  pauper  class.  It  is 
this  overlapping  and  blending  that  make  it  impossible  to  draw  up 
statistics  as  to  the  various  classes  of  sharers. 

However,  the  above  categories  possess  specific  characteristics, 
which  are  clearly  enough  marked  for  us  to  be  able  to  use  the  word 
"  classes  "  in  the  scientific  meaning  of  the  term. 


CHAPTER  I. 
THE  AUTONOMOUS  PRODUCER. 

I.    Why  this  Condition  is  the  most  Favorable  for  a  Fair 
Distribution  of  Wealth. 

The  autonomous  producer,  as  we  have  defined  him,  is  the  man 
who  labors  on  no  one  else's  account,  and  makes  no  one  else  work 
for  him.  He  suffices  for  himself,  and  receives  the  whole  of  the 
product  of  his  labor,  without  any  other  man  dreaming  of  disputing 
his  right  to  it. 

The  type  of  this  class  of  producers  is  the  peasani,  who  culti- 
vates his  land  by  means  of  his  own  arms  alone  (or  those  of  his 
family),  and  with  his  own  capital,  and  who  reaps  what  he  has 
sown.  But  this  class  also  includes  the  artisan  who  works  for  the 
public,  employing  no  other  hands  but  his  own  or  his  apprentice's 
(be  he  shoemaker,  tailor,  locksmith,  blacksmith,  or  what  not), 
and  even  the  shopkeeper,  if  he  himself  lays  out  for  a  profit  his 
little  stock  in  trade. 

Such  a  system,  were  it  generalized,  would  be  very  conducive  to 
a  satisfactory  distribution  of  wealth.  On  account  of  its  extreme 
simplicity  it  would  prevent  most  of  the  conflicts  that  now  arise 
between  the  various  classes  of  sharers,  especially  between  labor 
and  capital.  It  would  not  cause  the  reign  of  absolute  equality  — 
and  that  would  be  all  the  better ;  for  it  would  not  interfere  with 
the  continuance  of  the  causes  of  inequality  which  result  from  the 
natural  differences  between  men,  or  those  which  arise  from  the 
unequal  power  of  the  land  and  instruments  of  production  put 
into  use,  or  even  of  the  good  or  bad  luck  which  is  so  closely 
associated  with  all  the  acts  of  man.  Still  it  would  not  allow 
these  inequalities  to  pass  certain  limits,  if,  indeed,  we  mean  to 

473 


474  PRINCIPLES    OF    POLITICAL    ECONOMY. 

adhere  to  the  terms  of  our  hypothesis,  and  suppose  that  the 
producers  employ  only  their  own  labor ;  for  the  amount  of  land 
or  of  capital  that  a  man  can  work  with  his  own  unaided  efforts  is 
necessarily  somewhat  limited  —  a  few  acres,  if  we  speak  of  land, 
a  hundred  pounds  or  so,  if  we  refer  to  capital. 

A  society  composed  only  of  isolated  producers  would  thus  escape 
all  inequalities  save  those  which  spring  from  Nature  herself,  or 
from  the  vicissitudes  of  events,  and  would  be  within  a  hand's 
breadth  of  realizing  the  ideal  of  distributive  justice. 

This  class,  therefore,  is  usually  spared  by  the  socialists  in  their 
attacks  on  the  existing  order  of  things.  They  confine  themselves 
to  declaring  that  its  doom  is  irrevocable,  and  that  those  who  still 
represent  it  in  present  day  society  will  speedily  be  blotted  out 
by  the  fatal  progress  of  economic  evolution.  But  why?  Because, 
although  this  system  conduces  to  a  satisfactory  distribution  of 
wealth,  it  is,  they  say,  incompatible  with  the  requirements  of  large 
production.  Isolated  production  means  small  industry  and  small 
farming,  whereas  the  future  belongs  to  large  industry  and  large 
farming  under  the  regime  of  collective  production.  To  perpetuate 
isolated  production  would  be  to  "  decree  mediocrity  in  everything." 

Karl  Marx,  in  his  Capital,  recognizes  the  advantages  of  a  sys- 
tem under  which  the  laborer  employs  his  own  capital,  "just  as 
the  virtuoso  plays  on  his  instrument."  "But,"  he  continues,  "it 
excludes  concentration,  co-operation  on  a  wide  scale,  the  use  of 
machinery,  the  application  of  man's  knowledge  to  the  subduing 
of  nature,  concert  and  unity  in  the  ends,  the  means,  and  the  efforts 
of  collective  activity.  It  is  only  compatible  with  a  narrow  and 
limited  state  of  production  and  of  society." 

On  this  point  economists  are  at  one  with  socialists,  as  may  be 
seen  in  M.  de  Molinari's  work,  L Evolution  econo?nique  an  XIX' 
Steele. 

We  cannot  absolutely  accept  this  somewhat  peremptory  judg- 
ment. 

Mediocrity  in  the  conditions  of  life,  aurea  medioeritas,  need 
not  terrify  us ;   and  the  ancients,  who  were  as  good  judges  on 


DISTRIBUTION.  475 

this  matter  as  we  are,  regarded  it  as  one  of  the  requisites  for  hap- 
piness. Even  from  the  point  of  view  of  production  no  other  sys- 
tem can  better  excite  the  maximum  amount  of  productive  activity, 
for  each  man  works  for  himself.  Moreover,  whatever  may  be 
said,  it  does  not  exchide  co-operation  or  the  methods  of  large 
production,  provided  that  it  is  completed  by  association  on  a  large 
scale.  Association  is  also  necessary  for  the  correction  of  the  indi- 
vidualist or  even  egoistic  principle,  which  might  find  in  this  system 
an  environment  too  favorable  for  its  growth. 

Still,  whatever  be  its  virtues,  we  must  confess  that  this  social 
class  is  now  greatly  endangered  by  the  incessant  development  of 
large  industry.  We  need  only  repeat  that  the  course  of  evolution 
may  have  many  surprises  in  store  for  us,  and  may  bring  back  once 
and  again  forms  which  were  believed  to  have  vanished  forever. 
Were  a  means  to  be  found  of  replacing  the  steam-engine  by 
natural  forces  which  could  be  utilized  in  each  household,  small 
industry  might  be  filled  with  new  life ;  and  as  to  small  farming, 
that  not  only  still  lives,  but  never  ceases  to  extend. 

France  has  the  happy  privilege  of  being  one  of  those  countries 
in  which  the  class  of  autonomous  producers  is  the  most  numerous, 
and  this  comprises  not  only  the  peasants,  who  are  one  of  the 
characteristic  types  of  the  race,  but  also  the  artisans  and  the  shop- 
keepers. It  is  this  class  that  gives  so  firm  a  basis  to  the  social 
organization  of  France,  and  enables  it,  better  than  any  other  land, 
to  withstand  the  terrible  crises  of  its  history.  The  results  may  be 
a  certain  spirit  of  routine,  some  dulness  in  economic  action,  and 
an  inability  to  see  all  the  advantages  of  co-operation.  Neverthe- 
less, any  possible  modification  of  it  in  the  future  might  lead  men 
to  look  back  with  regret  upon  the  old  order. 

It  is  rather  difficult  to  calculate  the  number  of  peasant  pro- 
prietors in  France,  but  in  any  case  we  must  disregard  the  common 
assertion  that  the  greater  part  of  the  country  is  in  their  possession. 
In  the  first  place,  only  a  quarter  of  the  cultivable  land  (nearly 
32,000,000  out  of  123,000,000  acres)  is  possessed  in  the  state  of 
small  property;  that  is  to  say,  in  tracts  of  less  than  15  acres. 


4/6  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Further,  out  of  the  6,000,000  or  7,000,000  owners  who  share  this 
area,  nearly  half  possess  only  shreds  of  land  of  a  couple  of  acres  or 
so,  and,  as  that  is  not  enough  to  live  on,  they  are  obliged  to  hire 
themselves  out  as  day  laborers.  The  number  of  actual  peasant 
proprietors,  i.e.  proprietors  of  a  sufficient  amount  of  land  to  live 
on,  can  scarcely  exceed  3,000,000.  Small  industry  (the  artisan 
class)  numbers  rather  more  than  a  million,  and  small  businesses, 
such  as  shopkeepers,  inn-keepers,  etc.,  stand  for  rather  less  than 
1,000,000.  As  we  have  previously  observed,  we  cannot  con- 
gratulate ourselves  on  the  last  item.  To  sum  up :  the  number 
of  autonomous  producers  in  France  may  be  reckoned  to  be 
15,000,000,  which,  when  their  families  are  taken  into  account, 
would  make  20,000,000  inhabitants,  or  rather  more  than  half  of 
the  entire  papulation  of  France. 


CHAPTER  II. 

THE  MASTER. 

I.    The  Part  played  by  the  Master,  and  the  Legitimacy 

of  Profits. 

Our  first  class  of  isolated  producers  was  exceedingly  simple ; 
proportionately  complex  is  the  position  of  this  second  class  of 
sharers. 

Master,  or  xdXhtr  employer  {entrepreneur  in  the  original),  which 
is  the  customary  term  used  in  political  economy,  is  the  name 
given  to  every  man  who  possesses  an  instrument  of  production, 
whether  land  or  capital,  which  is  too  large  for  him  to  work  by  his 
unaided  efforts,  and  who  has  therefore  to  utilize  it  by  means  of 
the  labor  of  hired  workmen.  If  a  man  owns  more  than  ten  or 
twelve  acres  of  land,  he  will  be  unable  to  cultivate  it  by  himself, 
and  will  be  obliged  to  employ  day-laborers.  If  he  possesses  a 
capital  of  ^{^300  or  ^400,  he  will  be  unable  to  turn  it  to  account 
in  any  industrial  or  commercial  business  without  resorting  to  other 
people's  labor. 

So  far  the  situation  seems  to  be  a  perfectly  normal  one.  It  is 
quite  legitimate  that  a  man  who  has  too  much  wealth  should  em- 
ploy it  to  supply  work  for  those  who  have  not  enough.  Nay,  if 
we  consider  the  matter  farther,  we  can  easily  discern  a  fitting 
harmony  in  the  fact  that  the  capitalist  can  no  more  dispense  with 
the  laborer  for  the  profitable  employment  of  his  capital  than  the 
laborer  can  do  without  the  capitalist  for  the  utiHzation  of  his  aims. 

But  we  are  going  rather  too  fast.  The  landowner  or  the  capi- 
talist, who  employs  workmen  to  labor  on  his  land  or  with  his 
capital,  regards  the  product  of  the  business,  whatever  it  may  be, 
whether  it  takes  the  shape  of  agricultural  produce  or  of  manu- 

477 


478  PRINCIPLES   OF   POLITICAL   ECONOMY. 

factured  goods,  as  his  property ;  and  the  selling-price  of  these 
products,  when  the  cost  of  production  has  been  deducted,  forms 
his  income  or  his  profits.  Here  we  reach  dangerous  ground  ;  for 
we  may  ask,  in  virtue  of  what  right  does  the  master  appropriate 
for  himself  a  value  which  is  the  product  of  the  labor  of  his 
workmen  ? 

The  master  replies,  through  the  medium  of  the  economists,  that 
the  article  produced  is  altogether  his  work,  for  without  his  initia- 
tive it  would  not  exist  at  all ;  if  he  has  not  made  it,  at  any  rate  he 
has  had  it  made.  He  first  conceived  the  idea  of  it,  and  that  is  the 
primordial  and  essential  act  of  all  production ;  he,  too,  has  sup- 
plied the  means  of  executing  it.  Who,  then,  should  have  more 
right  to  the  article  than  he  has  ?  The  workmen  ?  But  they  have 
merely  executed  the  orders  they  have  received  ;  they  have  only 
been  the  implements  in  the  hand  of  the  employer.  Here  is  a 
proof:  if  we  take  two  businesses  that  employ  an  equal  number  of 
workmen,  we  constantly  see  one  succeed  and  the  other  fail  miser- 
ably. Industry  may  be  compared  to  warfare.  For  who  wins  the 
battle  ?  The  general.  No  doubt,  good  soldiers,  and  good  arms  like- 
wise, contribute  to  the  happy  issue,  but  they  are  the  conditions  of 
success  and  not  the  efficient  cause  j  this  is  shown  by  the  fact  that 
the  same  troops  with  the  same  material  of  war  will  be  beaten  if 
they  are  under  a  bad  commander.  In  business  matters,  too, 
generalship  is  everything.  The  employer  is  the  "  captain  of  in- 
dustry "  ;  victory  or  defeat  depends  on  him.  If  he  succeeds,  he 
alone  reaps  the  fruits  of  victory ;  if  he  fails,  on  him  alone  fall  the 
consequences  of  defeat,  and  he  is  punished  by  ruin. 

The  socialists  shrug  their  shoulders  at  this  picture,  and  say  that 
the  master  is  only  a  parasite,  or,  if  the  term  be  preferred,  a  specu- 
lator, whose  sole  business  is  to  buy  to  sell  again.  What  does  he  buy? 
The  power  exerted  in  the  workman's  toil  in  the  shape  of  manual 
labor.  What  does  he  sell  again  ?  The  same  power  of  labor  in  the 
concrete  form  of  goods.  He  buys  it  cheap  in  the  labor  market 
where  the  proletariat  arc  obliged  to  sell  themselves  in  order  to 
live,  and  where  the  sujjply  is  always  in  excess.     He  sells  it  again  at 


DISTRIBUTION,  479 

a  good  price  because  he  is  able  to  make  this  power  of  labor  yield 
all  it  can,  by  lengthening  the  hours  of  the  working-day  as  far  as 
possible,  by  enticing  his  men  with  the  deceitful  bait  of  piece- 
work, and  by  wearing  out  women  and  little  children  by  means  of 
machinery  which  turns  their  weak  arms  to  account.  To  pay  labor 
as  little  as  possible  and  to  make  it  yield  as  much  as  possible,  that 
is  the  whole  secret  of  the  master's  profits  ;«that  is  the  "mystery 
of  iniquity." 

The  first  of  these  two  portraits  is  excessively  flattering;  the 
second  is  a  distorted  caricature,  but  both  of  them  bear  some  sort 
of  resemblance  to  reality. 

Given  the  economic  organization  of  society,  it  is  certain  that  we 
must  have  the  master  to  play  his  part.  The  elements  of  produc- 
tion are  dispersed  amongst  a  multitude  of  persons :  on  the  one 
side,  the  masses  who  have  only  their  arms,  and  possess  neither 
land  nor  capital ;  on  the  other,  those  who  have  capital  and  land, 
but  have  no  desire  or  intention  to  take  to  manual  labor.  Now  to 
produce  wealth  at  all,  especially  on  a  large  scale,  it  is  absolutely 
necessary  to  combine  these  various  factors  of  production  in  one 
and  the  same  productive  operation.  But  who  is  to  unite  these 
scattered  elements  and  cause  them  to  converge  to  a  common  end  ? 
To  whom  is  to  fall  the  task  of  foreseeing  men's  wants,  of  harmon- 
izing production  with  consumption,  of  determining  the  path  on 
which  the  labor  and  capital  of  a  country  should  be  employed? 
Obviously  not  to  the  proletariat ;  it  must,  then,  fall  to  the  capitalist, 
and  it  is  clear  that  he  who  establishes  the  business  will  keep  the 
profits  for  himself. 

Although  the  social  function  of  the  employer  is  partly  forced 
upon  us  by  the  necessities  of  the  economic  situation,  it  is  none 
the  less  of  evil  consequences ;  for  it  makes  the  problem  of  distri- 
bution almost  a  hopeless  one,  keeps  up  the  acute  state  of  conflict 
between  capital  and  labor,  and  marks  off  society  into  two  hostile 
classes.  We  cannot  prevent  workmen  from  thinking  that  they 
have  rights  over  the  wealth  that  has  proceeded  from  their  hands ; 
we  cannot  prevent  them   from  bitterly  watching  generations  of 


480  PRINCIPLES    OF    POLITICAL    ECONOMY. 

masters  or  shareholders  succeeding  one  another  in  turn,  and 
growing  rich  from  factories  or  mines  in  which  they,  the  workers, 
have  also  labored  from  flither  to  son,  and  have  still  remained  poor. 
True  enough,  as  was  urged  by  the  employers'  advocates,  they 
have  only  been  tools ;  but  the  misfortune  of  present  society  lies 
in  that  very  fact  that  one  man  can  be  another's  tool.  Far  differ- 
ent is  this  from  the ''first  precept  of  morality  as  formulated  by 
Kant :  always  to  remember  that  we  must  regard  our  neighbor's 
personality  as  an  end  and  not  as  a  means.  Are  there  any  ways 
of  escaping  from  our  difficulty?     There  are  only  two. 

We  might  return  to  the  system  of  isolated  production  described 
in  the  last  chapter ;  but  such  an  attempt  would  be  utterly  vain. 
All  we  can  do  is  to  strive  to  preserve  such  relics  of  that  order  as 
still  remain. 

Our  other  course  would  be  to  organize  production  on  a  basis  of 
association,  but  not  the  association  practised  nowadays,  in  the 
form  of  joint  stock  companies,  capitalists  employing  whole  armies 
of  wages-earners,  companies  which  possess  all  the  disadvantages 
of  the  employer  system  without  its  advantages  ;  for  that  form  of 
association  has  the  most  serious  defect  of  accentuating  the  divorce 
between  capital  and  labor,  by  forming  two  distinct  classes  in  the 
same  undertaking  —  on  the  one  hand,  the  workmen,  who  labor  in 
a  business  the  profits  of  which  they  do  not  receive  —  and,  on  the 
other  hand,  the  shareholders,  who  receive  the  profits  of  a  business 
in  which  they  do  not  labor,  and  of  the  very  nature  of  which  they 
are  often  ignorant.  When  the  ownership  and  direction  of  a  con- 
cern are  in  the  hands  of  a  company,  i.e.  a  fictitious  and  invisible 
person,  that  ownership  and  authority  fall  greatly  in  the  estimation 
of  the  workmen.  Even  from  a  productive  point  of  view  these 
collective  undertakings  share  some  of  the  disadvantages  which  are 
shown  by  great  public  administrations,  and  which  would  be  mani- 
fested on  the  application  of  the  coUectivist  system ;  namely,  an 
absence  of  individual  initiative,  bureaucratic  measures,  and  some 
waste  of  labor  and  of  capital. 

We  should  strive  rather  to  form  co-operative  associations  of 


DISTRIBUTION.  48I 

laborers,  who  would  work  on  their  own  account,  and  use  instru- 
ments of  production  which  belong  to  themselves.  Thus  they 
would  be  able  to  receive  the  whole  product  of  their  labor.  That 
would  be  a  return  to  what  should  be  the  normal  order  of  things, 
in  which  capital  would  be  the  instrument  of  labor ;  not  as  now, 
when  labor  is  the  instrument  of  capital.  In  that  direction  we 
must  hope  that  the  solution  to  be  effected  by  the  future  will  lie, 
for  we  ourselves  can  conceive  no  other ;  but  when  we  deal  with 
co-operation  we  shall  see  the  difficulties  in  the  way  of  the  success 
of  such  associations.  The  principal  difficulty  is  how  to  do  without 
the  master. 

We  must  not  forget  the  solution  proposed  by  the  coUectivist 
school,  with  which  we  are  well  acquainted.  They  would  put  an 
end  to  the  classes  of  capitalists  and  masters,  by  abolishing  private 
l)roperty  in  capital  and  in  instruments  of  production,  which  would 
then  be  handed  over  to  society.  Society  henceforward  would  be 
the  only  master  or  employer.  As  it  would  not  try  to  make  any 
profits,  or,  what  is  the  same  thing,  would  pour  the  profits  into  the 
common  treasury  in  the  form  of  public  revenue,  the  people  would 
be  freed  from  the  enormous  tribute  which  is  now  levied  annually 
by  landowners  and  capitalists,  as  profits,  gains,  interest,  dividend, 
and  land-rent,  and  which  (in  France)  cannot  be  less  than 
;j^3 20,000,000  or  ;^400,ooo,ooo  a  year. 

So  large  a  saving  would  certainly  be  worth  the  trouble  of 
making,  if  it  could  be  proved  that  these  employers  and  capitalists 
are  of  no  use,  and  are  merely  parasites.  But  if,  as  our  previous 
explanations  seem  to  show,  these  employers  do  play  an  important 
part,  and  would  be  extremely  difficult  to  replace,  and  if,  unfortu- 
nately, the  forcible  appropriation  by  the  State  of  all  agricultural, 
industrial,  and  commercial  businesses,  and  the  abolition  of  all 
individual  enterprise,  were  to  reduce  the  production  of  wealth 
perhaps  by  half,  in  that  case  we  might  find  that  we  had  made  a 
very  bad  bargain,  and  the  saving  would  cost  us  dear. 


482  PRINCIPLES    OF    POLITICAL    ECONOMY. 

II.     The  Laws  which  regulate  Profits. 

When  once  we  have  admitted  the  social  function  of  the  master, 
whether  willingly  or  against  our  inclinations,  the  legitimacy  of 
profits  naturally  follows.  We  only  have  to  determine  the  laws 
which  regulate  them. 

As  we  are  aware,  the  production  of  wealth  requires  the  con- 
sumption of  other  wealth,  in  the  shape  of  raw  materials,  imple- 
ments, and  wages  {i.e.  articles  of  subsistence  consumed  by  the 
workmen).  If  the  operation  has  been  performed  well,  the  value 
of  the  wealth  produced  will  be  higher  than  the  value  of  the 
wealth  destroyed ;  if  the  work  has  been  done  badly,  the  value  of 
the  wealth  produced  will  be  less  than  that  of  the  wealth  destroyed. 
This  is,  then,  a  very  delicate  process,  which  requires  a  nice  appre- 
ciation of  the  wants  of  consumption,  and  demands  predictions 
which  often  take  long  to  fulfil,  and  in  which  mistakes  may  be 
easily  made.  The  employer  has  to  carry  out  this  operation.  If 
he  conducts  it  successfully,  his  recompense  is  the  excess  of  the 
values  produced  over  the  values  consumed ;  if  he  has  erred  in  his 
forecasts,  he  has  to  bear  the  difference  between  the  values  pro- 
duced and  the  values  destroyed.     In  that  case  he  will  lose. 

The  values  destroyed  in  the  process  of  production  are  what  the 
employer  calls  the  cost  of  production  ;  the  excess  of  the  values  pro- 
duced over  the  values  consumed  forms  his  net  product  or  profits. 
Profits  are  limited  by  no  necessary  law.  If  the  employer  is  skilful 
enough  to  produce  goods  to  a  high  value,  and  spends  but  litde  on 
them,  his  profits  will  be  very  great.  That  will  be  so  much  the 
better  for  society,  for  this  difference  of  values  exactly  shows  that 
relatively  useless  things  have  been  sacrificed  for  the  production  of 
an  article,  which,  relatively  speaking,  is  exceedingly  useful,  or  at 
any  rate  answers  to  a  very  intense  desire. 

We  must  not  conclude  from  this  that  the  employer  and  society 
take  identically  the  same  standpoint.  Society  measures  the  cost 
of  production  by  the  quantity  of  raw  material  destroyed  and  the 
amount  of  labor  employed.     The  employer  estimates  it  according 


DISTRIBUTION.  483 

te  the  sums  he  has  to  pay  out  to  his  workmen  as  wages  and  to 
capitaHsts  as  interest.  Now,  as  we  are  here  deaHng,  not  with  a 
destruction,  but  only  with  a  transference  of  wealth,  —  for  the 
expenditure  of  the  employer  goes  towards  the  income  of  other 
classes,  —  it  matters  little  to  society  whether  the  expenses  are 
increased  or  reduced.  Take  a  piece  of  land  which  yields  a  gross 
produce  of  ^2000,  The  owner  says,  "I  must  deduct  ^1600 
from  that  for  what  I  pay  for  manual  labor,  so  that  my  returns  only 
come  to  ^400.  Not  a  large  sum,  to  be  sure  !  "  Very  likely  not ; 
but  these  p^i6oo  which  are  distributed  among  the  workmen  form 
part  of  the  income  of  society  as  a  whole.  Hence  it  is  sometimes 
said  that,  socially  speaking,  there  is  no  difference  between  net 
produce  and  gross  produce  ;  but  that  statement  is  a  little  too  wide. 

As  we  are  aware,  under  the  action  of  competition  the  value  of 
things  always  tends  to  approach  the  cost  of  production,  and  we 
have  already  more  than  once  explained  this  mechanism.  If,  then, 
there  is  perfect  freedom  in  industry,  —  if  the  producer  is  not  pro- 
tected by  a  legal  monopoly,  or  letters  patent,  or  protective  duties, 
—  the  employer  will  not  often  make  very  high  profits,  and,  in  any 
case,  not  for  long. 

Now  what  is  the  minimum  to  which  competition  can  reduce 
profits  ?  Clearly  we  cannot  suppose  that  it  may  reduce  profits  to 
zero,  by  lowering  the  price  of  articles  to  the  level  of  the  cost  of 
production,  for  in  that  case  the  employer  would  make  no  gains, 
and  would  cease  to  produce. 

The  English  school  teaches  ^  that  profits  are  included  in  the 
cost  of  production.  Though  such  a  statement  is  somewhat  start- 
ling at  first,  it  may  be  justified,  if  we  consider  that  profits, 
under  the  action  of  competition,  are  resolved  into  wages,  interest, 
redemption,  and  insurance.  But  these  are  the  ordinary  elements 
of  the  cost  of  production. 

Between  the  cost  of  production  and  the  selling  price  there  must 
always  be  a  certain  margin,  which  represents  the  minimum  profits. 

^  Or  rather,  "  taught."     J.  S.  Mill  is  probably  meant.  —  J.  B. 


484  PRINCIPLES    OF    POLITICAL    ECONOMY. 

We  must  now  determine  this  minimum,  which  is  composed  of 
three  elements. 

Firstly,  the  iriterest  arid  redemption  of  the  capital  employed, 
calculated  according  to  the  normal  rate  of  interest  in  the  market 
for  capital.  In  every  society  where  such  a  market  exists  —  i.e. 
wherever  there  are  people  who  can  obtain  interest  for  their  capital, 
while  they  stay  peacefully  at  home  and  do  nothing  —  it  is  clear 
that  no  one  will  amuse  himself  by  sinking  capital  in  industry  or 
trade,  unless  he  is  absolutely  certain  that  it  will  yield  him  an 
interest  equal  to  that  which  he  would  obtain  from  the  same  capital 
invested  in  securities  which  he  has  in  his  desk. 

Still,  a  close  glance  at  the  numerous  businesses  which  are  carried 
on  in  any  society  would  certainly  show  us  some  which  are  not  suffi- 
ciently productive  to  remunerate  at  the  current  rate  the  capital 
which  is  engaged  in  them.  How  is  it,  then,  that  such  a  business 
continues  to  go  on?  We  can  easily  explain  this  contradiction  by 
looking  at  the  nature  of  the  capital  employed.  If  it  be  fixed 
capital,  even  if  we  wished,  we  could  not  give  it  any  other  destina- 
tion than  that  for  which  it  was  formed.  The  choice  lies  between 
abandoning  it  altogether,  or  being  content  with  however  small  a 
return  it  may  yield.  Obviously,  the  latter  course  is  taken,  for  it 
is  better  to  lose  part  than  to  lose  all.  Railway  and  tram  lines 
often  give  instances  of  this. 

Secondly.  The  second  element  is  the  prernimti  of  the  insurance 
against  the  various  risks  which  the  employer  has  to  bear  in  their 
entirety.  The  object  of  this  is  not  to  realize  gains,  but  to  avoid 
loss. 

If,  in  some  branch  of  industry,  on  the  average  one  business  out 
of  ten  goes  bankrupt,  the  premium  must  be  high  enough  to  com- 
pensate for  bad  luck ;  for  unless  the  chances  of  profit  were  at  least 
to  balance  the  chances  of  loss,  no  one  would  be  rash  enough  to 
enter  on  that  line  of  business. 

Nor  is  this  all.  Grant  that  the  business  is  among  the  successful 
ones.  It  will  be  lucky  if  it  has  not  one  bad  year  out  of  every  ten. 
Let  us  suppose  that  this  bad  year  swallows  up  half  the  employer's 


DISTRIBUTION.  485 

capital ;  then  the  other  nine  will  have  to  give  him  a  surplus  which 
will  be  enough  to  reimburse  him  for  that  loss.  We  can  thus  see 
that  there  is  considerable  risk,  and  that  therefore  the  insurance 
premium  ought  to  be  of  some  height. 

Thirdly.  The  wages  of  the  employer's  labor,  which  is  a  com- 
plex labor,  comprising  initiative,  direction,  and  control.  This  ele- 
ment  does  not  figure  in  the  profits  received  by  shareholders  in 
joint  stock  companies  under  the  name  of  dividends ;  for  such 
persons  do  nothing,  and  pay  a  manager  to  conduct  the  business. 
Dividends,  strictly  speaking,  should  only  include  interest  and  the 
premium  on  insurance.^  Now  the  wages  of  the  employer's  labor 
clearly  cannot  be  appraised  in  definite  figures ;  they  depend  on 
such  matters  as  customs,  habits,  and  the  degree  of  general  com- 
fort. But  we  may  fix  our  ideas  of  the  subject  by  saying  that  the 
sum  ought  to  be  equal  to  the  salary  that  the  employer  would 
have  to  pay  to  obtain  an  engineer  or  a  manager  who  would  super- 
intend the  factory  in  his  stead.  Some  manufacturers  in  making 
out  their  books  put  such  a  sum  to  their  own  credit  under  the 
head  of  salary.  Obviously,  if  the  business  did  not  reward  him 
for  his  labor  in  a  fitting  manner,  the  manufacturer  would  choose 
another  kind  of  occupation  in  which  he  could  better  utilize  his 
capacity  or  aptitude. 

Such  are  the  elements  into  which  profits  might  be  resolved  on 
the  purely  theoretical  hypothesis  of  a  system  of  absolutely  free 
competition.  Naturally,  as  things  actually  go,  the  rate  of  profits 
will  be  usually  above  but  sometimes  below  our  limit. 

Generally  speaking,  there  is  a  great  tendency  to  exaggerate  the 
rate  of  profits.  The  circumstance  that  in  any  business  the  profits 
are  accumulated  in  one  man's  hands,  whilst  the  wages  are  scattered 
amongst  hundreds  or  thousands  of  sharers,  throws  a  false  light  on 
the  respective  importance  of  the  receivers.  If  mastership  were 
to  be  abolished  and  profits  were  distributed  among  all  the  vvork- 

1  In  this  case  the  shareholders  over  any  considerable  period  of  time  would 
have  gained  only  by  the  interest;  it  would  therefore  have  been  equally  profit- 
able for  them  to  have  been  simply  holders  of  debentures.  —  J.  B. 


486  PRINCIPLES    OF    POLITICAL    ECONOMY. 

men  in  the  factory,  in  many  cases  each  man's  share  would  be 
increased  only  in  very  small  measure.  One  instance  will  be 
enough.  In  iSSi  the  coal-miners  in  the  whole  of  the  Department 
of  the  Nord  distributed  a  total  sum  of  ;^82i,i76  in  wages  and 
^110,476  in  profits  {i.e.  dividends).  Thus  the  profits  were  13 
per  cent  of  the  wages ;  in  other  words,  had  the  demands  of  the 
socialists  been  complied  with,  and  all  shareholders  been  sup- 
pressed and  their  dividends  divided  among  the  workmen,  each 
man's  daily  wages  would  have  risen  on  the  average  from  y.  2d.  to 

Further,  each  of  these  elements  is  itself  variable,  and  the  usual 
doctrine  is  that  each  of  them  tends  to  fall  progressively,  whence 
it  is  concluded,  by  a  perfectly  logical  deduction,  that  the  rate  of 
profits  itself  tends  to  fall.  The  rate  of  interest,  we  are  told,  falls 
in  proportion  to  the  increase  of  capital ;  the  premium  of  insurance 
against  risk  diminishes  in  accordance  with  the  reduction  of  such 
risks,  and  finally  the  wages  of  superintendence  grow  lower  in 
proportion  as  the  spread  of  education  makes  such  labor  of  man- 
agement accessible  to  all.  To  our  mind  these  assertions  are  very 
hypothetical.  When  we  speak  of  the  fall  of  the  rate  of  interest 
we  shall  discuss  this  topic  again. 

III.    Whether  the  Rate  of    Profits  is  in  Inverse  Ratio  to 
the  Rate  of  Wages. 

According  to  Ricardo,  the  rate  of  profits  always  varies  in  inverse 
ratio  to  the  rate  of  wages.'  This  statement  gravely  offends  the 
economists  of  the  optimistic  school,  for  it  supposes  a  permanent 
and  necessary  antagonism  between  the  interests  of  masters  and  of 
workmen.     However,  it  is  perfectly  substantiated  if  we  only  add, 

1  It  is  to  be  remembered  that,  to  Ricardo,  high  or  low  wages  meant  a  large 
or  small  proportion  of  the  product  as  compared  with  profits.  If  the  price 
doubled  without  any  alteration  in  the  said  proportion,  he  would  not  have  said 
that  the  rates  had  altered  at  all.  See  Ricardo's  Poi.  Econ.  of  Tax.,  Chap. 
VII.  — J.  B. 


DISTRIBUTION.  48/ 

as  we  should  do  in  enunciating  all  scientific  propositions,  the  words 
ceteris  paribus,  "other  things  being  equal."  For,  if  the  products 
of  the  business  become  greater,  it  is  clear  that  the  rate  of  wages 
and  the  rate  of  profits  will  be  able  to  increase  simultaneously 
without  there  being  any  contradiction.  Take  a  piece  of  cloth 
which  is  sold  for  two  shillings ;  let  one  shilling  go  to  the  master 
and  the  other  shilling  to  the  workman.  Now  if  in  this  factory, 
the  number  of  hands  and  the  capital  engaged  remaining  the  same, 
but  the  methods  being  improved  or  the  labor  being  executed 
more  intelligently,  four  pieces  of  cloth  are  produced  which  are 
worth  eight  shillings,  then  the  master's  share  and  the  workman's 
share,  profits  and  wages,  might  also  be  quadrupled,  i.e.  rise  simul- 
taneously to  four  shillings.  No  doubt  it  is  somewhat  absurd  to 
imagine  that  the  production  of  any  manufacture  can  be  made 
fourfold  whilst  the  old  prices  are  kept  up.  But,  even  if  we  grant 
that  the  price  of  each  piece  of  cloth  is  reduced  by  half  and  falls 
to  one  shilling,  the  total  value  of  the  four  pieces  will  still  be  double 
the  former  value  of  the  produce,  i.e.  be  four  shilHngs  ;  thus  profits 
and  wages  can  even  now  be  simultaneously  doubled. 

This  explains  how  it  is  that  in  new  countries,  such  as  the  United 
States  and  Australia,  we  see  at  one  and  the  same  time  very  high 
wages  of  8,  10,  or  12  shillings  a  day,  and  profits  which  amount  to 
15,  20,  or  sometimes  100  per  cent  of  the  capital  employed.  For 
in  such  societies,  which  combine  the  methods  of  the  most  advanced 
civilization  with  the  resources  of  a  still  virgin  land,  productive 
power  is  at  its  acme,  and,  as  the  gross  produce  of  each  productive 
operation  is  far  greater  than  it  usually  is  in  Europe,  the  portion 
that  falls  to  each  of  the  sharers  may  also  be  much  larger. 

It  is  a  remarkable  fact  that  these  high  profits  and  high  wages 
by  no  means  prevent  the  industries  in  such  countries  from  fre- 
quently producing  at  a  cheaper  rate  than  is  the  case  in  other  lands 
where  wages  and  profits  are  lower,  say  in  India,  where  manual 
labor  may  be  had  for  the  asking.  We  can  easily  account  for  this 
paradoxical  result  by  showing  that  the  greater  height  of  the  wages 
is  more  than  compensated  for  by  the  productive  superiority  of  the 


488  PRINCIPLES    OF    POLITICAL    ECONOMY. 

laborers.  The  labor  of  an  English  workman  who  is  paid  eight 
shillings  a  day  may  be  much  cheaper  than  the  labor  of  an  Indian 
coolie  who  receives  only  sixpence  a  day.  That  would  clearly 
follow  if  the  former  made  thirty  or  forty  yards  of  cotton  stuff  per 
dieni,  whilst  the  latter  only  made  one. 

The  argument  often  urged  by  protectionists  is  therefore  as 
devoid  of  a  logical  basis  as  it  is  contrary  to  facts  —  their  dictum 
being  that,  as  free  trade  establishes  competition  between  all  coun- 
tries, its  result  must  be  to  drive  down  wages  by  conferring  the 
superiority  on  the  country  which  can  pay  its  workmen  least.  In 
reality  international  competition  gives  the  upper  hand,  not  to  the 
land  where  wages  are  lowest,  but  to  the  one  where  productive 
power  is  the  greatest. 


CHAPTER   III. 

THE   WAGES-EARNER. 

I.    The  Contract  of  Wages. 

The  following  preliminary  observations  are  necessary :  The 
classical  school  uses  the  term  wages-earner  {salarie)  in  a  very 
wide  sense.  Some,  indeed,  in  imitation  of  Mirabeau,  who  used 
to  say  that  the  landowner  himself  was  only  a  wages-earner,  indis- 
criminately put  all  classes  of  society  into  this  category.  Most 
include,  at  least,  all  those  who  exchange  their  services  for  money, 
e.g.  barristers,  doctors,  public  officials,  and  even  artisans  who  work 
to  order.  We  must  not  be  deceived  by  this  abuse  of  the  word 
"wages-earner,"  for  its  sole  object  is  to  represent  wages  as  the  most 
general  and  the  most  legitimate  mode  of  remuneration.^  Scien- 
tifically, the  word  "wages-earner"  can  only  be  applied  to  men  who 
labor  for  another  man.  Those  who  work  for  the  public  are  not 
"  wages-earners  "  ;  and  popular  speech  is  correct  in  this  respect, 
for  it  uses  the  term  "wages"  only  for  the  former  class.  Other  men 
may  have  salaries,  honoraria,  fees,  etc.,  but  not  wages. 

The  wages-earner  and  the  master  are  a  pair  of  characters  whose 
lot  is  altogether,  different,  but  whom  fate  has  inseparably  bound 
together ;  there  is  little  love  lost  between  them,  but  they  cannot 
obtain  a  divorce.  The  man  who  possesses  nothing  but  his  arms 
can  produce  nothing  whatsoever,  unless  he  receives  an  instrument 
of  production ;  but,  under  the  present  economic  organization,  no 
one  can  supply  him  with  this  instnmient  save  the  landowner  or 

1  A  chief  offender  is  Max  Wirth,  who  regards  conquest  as  an  achievement 
of  skilled  labor  getting  its  due  wages.  See  Lange,  Arbeiterfrage,  page  139. 
-J.B. 

489 


490  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  capitalist.  Similarly,  however  large  be  the  instrument  of  pro- 
duction that  he  owns,  neither  landlord  nor  capitalist  can  reap 
any  returns  from  it  without  using  the  arms  of  other  men. 

Now,  since  the  force  of  events  has  thus  associated  labor  and 
capital,  the  easiest  thing  to  do  would  seem  to  be  to  make  a  real 
contract  of  partnership.  The  laborer  might  say,  "  I  have  con- 
tributed my  bodily  strength ;  you  have  contributed  your  capital ; 
let  us  share  the  proceeds."  In  such  a  course  alone  must  we 
endeavor  to  find  a  solution  of  the  problem.  But  the  simplest 
solutions  are  often  those  for  which  we  have  to  wait  the  longest ; 
and  though  this  solution  is  not  an  impossible  one,  as  some 
economists  assert,  still  it  is  certainly  not  on  the  eve  of  realization. 

For  partnership  requires  that  the  partners  shall  have  a  certain 
equality  of  position  and  a  certain  community  in  their  aims.  Such 
conditions  are  wanting  when  we  put  together  the  poor  man  and 
the  rich  man,  the  proletariat  and  capitalists.  The  latter  seeks  to 
make  his  fortune,  the  former  strives  to  earn  his  living ;  the  one 
speculates  on  more  or  less  distant  results,  the  other  has  to  think 
of  his  daily  bread  ;  the  motto  of  the  one  is  "Risk  nothing,  nothing 
gain  "  ;  the  other  can  risk  nothing,  for  there  is  naught  that  he  can 
lose. 

Hence  the  failure  of  partnership  between  capitalist  and  laborer, 
and  the  substitution  in  its  stead  of  the  wages-system.  This  system 
is  a  bargain,  by  the  terms  of  which  the  workman  surrenders  all 
rights  to  the  product  of  his  labor,  in  consideration  of  a  fixed 
sum  which  is  payable  either  weekly  or  monthly. 

This  contract  contains  a  double  advantage.  The  employer  is 
left  with  the  definitive  ownership  of  the  produce,  and  the  entire 
control  of,  and  responsibility  for,  the  business;  the  workman  is 
guaranteed  a  sure  reward,  which  is  immediate,  and  is  independent 
of  all  risks  that  may  attend  the  business. 

There  is  nothing  intrinsically  unjust  in  such  a  contract,  for  we 
see  it  resorted  to  by  other  classes  of  sharers.  Thus  the  ca])italist, 
if  he  has  transactions  with  the  employees,  usually  prefers  the 
bargain  for  a  fixed  sum,  which  is  called  loan  at  interest,  to  the 


DISTRIBUTION.  49I 

contract  of  partnership  termed  a  sleeping  partnership.  Similarly, 
the  landowner,  when  dealing  with  that  species  of  employer  whom 
we  term  the  farmer,  commonly  prefers  the  form  of  bargaining 
called  rent  to  the  contract  of  partnership  known  as  the  metayage 
system.  In  both  cases  all  rights  over  the  produce  are  voluntarily 
surrendered  in  exchange  for  a  fixed  annuity. 

However,  for  a  contract  of  this  kind  to  be  equitable,  the  con- 
tracting parties  should  be  on  an  equal  footing.  That  is  the  case 
in  the  instances  given  above.  The  lender  and  the  landowner  are 
certainly  on  an  equal  footing  with  the  borrower  and  the  farmer ; 
nay,  they  possess  a  superior  position,  in  virtue  of  which  they  will 
not  abandon  their  eventual  rights  to  the  produce,  unless  they  are 
equitably  compensated.  Thus  the  balance  is  usually  on  their  side, 
and  that  is  evidenced  in  the  terms  of  the  contract.  But  in  the 
contract  of  wages  the  positions  are  reversed.  It  is  the  master 
who  holds  the  whip-hand  over  the  laborer ;  and  there  is  great  fear 
that  the  latter,  pressed  by  want,  will  do  as  the  hungry  Esau  did, 
who  sold  his  birthright  for  a  mess  of  pottage. 

Further,  leaving  the  high  ground  of  justice,  and  using  the 
criterion  of  social  utility,  the  contract  of  wages  is  seen  to  have  a 
vice  which  absolutely  condemns  it.  As  soon  as  the  laborer  sur- 
renders his  interest  in  the  product  of  his  labor,  he  loses  all  stimulus 
to  production ;  nay,  it  is  obviously  to  his  advantage  to  do  as  little 
work  as  possible  in  return  for  the  price  the  master  pays  him  for 
his  labor.  He  can  only  be  made  to  act  otherwise  by  the  sentiment 
of  duty  or  the  sentiment  of  fear ;  fear,  not  of  the  whip,  as  the 
slave  feels,  but  of  dismissal,  and  of  the  loss  of  his  livelihood. 
The  first  of  these  motives  can  only  influence  minds  of  a  higher 
stamp,  and,  moreover,  grows  weaker  as  the  antagonism  between 
masters  and  workmen  becomes  more  pronounced.  The  second 
motive  —  and  human  nature  may  boast  of  the  fact  —  has  never 
wrung  any  good  results  from  man. 

Further,  the  interests  of  masters  and  workmen  inevitably  clash, 
and  the  wages-system  does  not  become  more  bearable  for  its  fatal 
offspring,  the  strike.     No  one  denies  that  the  contract  of  wages  is 


492  PRINCIPLES    OF    POLITICAL    ECONOMY, 

advantageous  in  certain  special  cases ;  but  what  is  contrary  to 
nature  is  that  this  form  of  contract  should  become  the  general 
law  of  present  society,  so  that,  of  their  own  free  will  or  not,  the 
laboring  masses  are  dispossessed  of  all  rights  over  the  produce 
of  their  labor,  and  are  deprived  of  all  interest  in  the  work  of  pro- 
duction. Such  a  state  of  things  can  scarcely  be  regarded  as 
final.  We  must  add  that  the  classical  school  will  not  admit  this 
conclusion  ;  in  its  opinion,  the  wages-system  constitutes  a  contract 
which,  besides  being  legitimate  and  salutary,  is  also  definitive. 

II.    The  Laws  which  regulate  the  Rate  of  Wages. 

Are  there  really  any  natural  laws  that  regulate  the  rate  of  wages  ? 
The  search  might  almost  seem  to  be  an  idle  one ;  for  wages  vary 
in  amount  from  one  trade  to  another,  and  from  one  place  to 
another,  and  in  each  individual  instance  are  determined  by  a 
conflict  between  master  and  man. 

But  the  price  of  a  thing  also  varies  according  to  the  nature  of 
the  article,  the  time,  and  the  place ;  it  is  the  result  of  a  free  strug- 
gle between  buyer  and  seller ;  yet  that  does  not  hinder  us  from 
investigating  the  laws  which  govern  prices. 

There  is  no  contradiction  in  this.  No  doubt,  prices  and  wages 
are  determined  by  agreements  entered  on  by  men  ;  but  these 
very  agreements  are  fixed  by  general  causes  which  it  is  our  busi- 
ness to  discover.  Our  belief  in  the  existence  of  natural  laws  in 
political  economy  must  lead  us  to  hold  that  men,  when  making 
contracts  or  agreements,  are  influenced  by  psychological  motives 
or  exterior  circumstances  which  have  a  general  nature  and  can  be 
disentangled  from  the  confused  mass  of  particular  instances.  Be- 
sides, it  is  not  accurate  to  say  that  wages,  any  more  than  prices, 
are  fixed  by  individual  agreements ;  on  the  contrary,  just  as  there 
is  a  general  price  for  commodities,  which  is  only  slightly  affected 
by  individual  bargainings,  so,  too,  there  is  a  general  rate  of  wages 
for  every  kind  of  labor  which  is  as  binding  on  employers  as  it  is 
on  their  workmen. 


DISTRIBUTION.  493 

An  inquiry  into  the  laws  which  govern  the  rate  of  wages  is, 
therefore,  an  investigation  of  the  general  causes  which  have  made 
wages  higher  at  the  present  day  than  they  were  half  a  century 
ago,  and  better  in  the  United  States  than  they  are  in  Europe  :  it 
is  also  an  attempt  to  forecast  whether  the  general  tendency  of 
wages  is  to  rise  or  to  fall. 

The  problem  might  be  set  in  a  purely  abstract  way,  viz.  What 
ought  to  be  the  rate  of  wages  in  an  ideal  state  ?  In  other  words. 
Given  the  capital  and  labor  engaged  in  any  business,  what  share 
ought  to  fall  to  each? 

Say  that  Robinson  Crusoe  furnishes  Man  Friday  with  a  canoe 
and  nets.  As  the  result  of  his  day's  work  Friday  brings  home  ten 
bushels  of  fish.  How  many  are  to  go  to  Crusoe  (capital)  ?  How 
many  to  Friday  (labor)  ?  In  these  terms  the  problem  is  insol- 
uble, but  many  economists  have  sought  to  find  an  answer.  Von 
Thiinen,  a  German  economist,  tried  to  solve  it  mathematically  in 
his  striking  book.  Natural  Wages.  His  view  is  that  the  natural 
wage  is  the  geometrical  mean  between  two  factors.  The  first  is 
the  value  consumed  in  the  maintenance  of  the  laborers ;  the 
second  is  the  value  produced  by  their  labor.  Let  a  =  necessaries 
and  /  =  product ;  then  Wages  =  V^?/.  (See  Roscher,  JVat.  Ok. 
Deutschland,  p.  895.) 

In  his  Priiicipii  d'' Economia  pttra,  M.  Pantaleoni  has  tried  his 
hand  at  the  problem.  Less  ambitious  than  Von  Thiinen,  he 
confines  himself  to  an  attempt  to  determine  two  fixed  limits 
between  whiqh  the  amount  of  wages  falls.  His  method  is  to  find 
out  the  advantage  which  each  of  the  parties  (taken  as  isolated^ 
might  have  obtained.  Say  that  Friday  by  himself  could  have 
filled  3  baskets  of  fish ;  that  figure,  3,  is  the  lower  limit  of  his 
claims.  Say  that  Crusoe  by  himself  could  have  procured  3  from 
his  capital.  Then  under  no  circumstances  will  he  give  Friday 
more  than  7,  for  in  that  case  his  collaboration  with  Friday  would 
do  him  no  good.  Friday's  wages,  then,  will  be  somewhere  be- 
tween 3  and  7.  But,  if  we  make  the  feasible  supposition  that 
neither  Crusoe  nor  Friday  has   obtained  aught   by  his   unaided 


494  PRINCIPLES    OF    POLITICAL    ECONOMY. 

efforts,  that  the  value  of  the  isolated  capital,  and  the  value  of  the 
isolated  labor,  is  in  each  case  zero,  then  the  solution  of  the  prob- 
lem is  perfectly  indeterminate. 

Under  the  present  organization  of  economics  labor  is  but  a 
commodity  which,  under  the  name  of  manual  labor,  is  bought  and 
sold  in  the  markets  like  any  other  article.  More  properly  it  is 
"  hired  "  or  "  let  "  j  but  the  distinction  has  not  that  importance 
in  economics  which  it  possesses  from  a  legal  point  of  view. 
The  price  of  manual  labor,  then,  must  be  absolutely  determined 
by  the  same  laws  as  regulate  the  prices  of  other  commodities. 
The  complex  laws  which  we  discussed  when  considering  value 
are  summed  up  in  the  formula  of  supply  and  demand ;  in  brief, 
the  value  of  things  is  determined  by  their  utility  and  by  their 
quantity.  The  price  of  manual  labor,  then,  must  depend  both 
on  its  utility  and  on  its  rarity.  Its  utility  means  the  productive 
power  of  manual  labor  in  a  given  country  at  a  given  time,  and  the 
need  felt  for  its  assistance ;  its  quantity  signifies  the  number  of 
laborers  who  have  only  their  arms  to  depend  on,  and  who  offer  them 
in  the  market.  This  is  the  expression  of  what  is,  not  of  what  ought 
to  be ;  we  shall  see  that  a  reaction  has  set  in  against  this  natural 
law,  and  that  the  workers  are  beginning  to  escape  from  it. 

Various  economists  have  expounded  three  great  theories,  each 
of  which,  respectively,  has  endeavored  to  express  the  law  of  wages 
by  a  single  formula  which  connects  it  with  one  only  cause.  That,  in 
our  opinion,  constitutes  the  incompleteness  of  all  of  the  theories. 
As  was  the  case  with  profits,  we  shall  be  confronted  by  the  bat- 
tling theories  of  the  socialist  school  and  of  the  optimists. 

Section  i.     The  Theory  of  the  Law  of  Brass. 

The  socialist  school  declares  that,  with  the  present  organization 
of  economics,  wages  can  never  rise  above  the  minimum  explained 
above  ;  and  that  this  minimum  is  also  the  maximum  that  wages 
can  attain.     The  following  is  the  line  of  argument. 

Manual  labor,  or  the  power  of  labor  {Arbeitskraft") ,  is  under 
present  conditions  merely  a  commodity  which  is  sold  and  bought 


DISTRIBUTION.  495 

in  the  market  in  the  same  way  and  according  to  the  same  laws  as 
every  other  commodity :  workmen  are  the  sellers ;  masters  are 
the  buyers.  Now  all  commodities  are  subject  to  the  law  that, 
wherever  competition  can  be  freely  exercised,  their  value  is 
determined  by  their  cost  of  production.  This  is  what  economists 
call  natural  price  or  tiormal  value.  The  commodity,  manual 
labor,  cannot  escape  this  rule.  Its  price,  therefore,  that  is  to  say, 
wages,  is  determined  by  its  cost  of  production.  To  quote  Las- 
salle,  Bastiat-ScJmlzc-Delitzsch  (Chap.  IV),  "Just  as  the  price  of 
all  other  commodities,  is  the  price  of  labor  determined  by  the 
relations  between  supply  and  demand.  But  what  is  it  that  deter- 
mines the  market  price  of  each  commodity,  or  the  average  rela- 
tion between  the  supply  and  demand  of  any  article?  The 
expenses  necessary  for  their  production."  • 

We  must  now  learn  the  meaning  of  the  words  "  cost  of  produc- 
tion "  when  applied  to  the  laborer  considered  as  a  material  object. 
In  the  case  of  any  piece  of  machinery,  the  expenses  of  production 
consist  («)  in  the  value  of  the  coal  it  consumes,  (b)  in  the  sum 
that  must  be  yearly  put  by  to  redeem  it ;  i.e.  to  replace  it  by 
another  one  when  it  is  worn  out. 

Similarly,  the  cost  of  production  of  labor  is  composed  {a)  of  the 
value  of  the  food  and  other  articles  that  the  workman  must  con- 
sume in  order  to  keep  in  good  health,  i.e.  to  be  in  a  fit  state  to 
produce ;  {b)  of  the  redemption  premium  that  is  requisite  to 
replace  the  laborer  when  he  can  no  longer  work,  i.e.  to  rear  a 
child  till  it  is  grown  up. 

In  brief,  wages  must  be  regulated  by  the  value  that  is  abso- 
lutely necessary  for  the  support  of  the  laborer  and  his  family,  or, 
more  generally,  for  the  subsistence  and  propagation  of  the  laboring 
population. 

Such  is  the  theory  usually  known  as  the  Law  of  Brass.  Enor- 
mous success  has  attended  this  sonorous  term  which  was  invented 
by  Lassalle,  and  since  then  it  has  rung  forth  in  all  the  manifestoes  of 
the  labor  party  as  if  it  were  a  refrain  of  a  Marseillaise  of  socialism. 

We  must  observe  that  though  this  theory  was  baptized  and 


496  PRINCIPLES    OF    POLITICAL   ECONOMY. 

brought  into  public  notice  by  the  coUectivist  school,  it  was  first 
formulated  by  the  classical  school.  Turgot  was  the  earliest  author 
of  the  statement  that  "in  every  kind  of  labor  the  workman's 
wages  must  fall  to  a  level  solely  determined  by  the  necessities  of 
existence."  (^Distribution  des  Richesses,  §  VI.)  Almost  identical 
words  were  used  by  J.  B.  Say  and  Ricardo,  and  greatly  have  they 
been  blamed  for  them. 

Whoever  originated  the  idea,  the  name  is  an  excellent  one  if 
the  theory  is  believed  to  be  correct ;  for  it  burdens  the  working 
classes  with  the  hardest  yoke  that  could  be  conceived,  and  reduces 
them  to  a  truly  hopeless  position.  For  in  what  way  can  the 
workman  improve  his  condition  ?  Can  he  hope  to  gain  more  by 
working  harder  and  better?  By  no  means.  As  his  wages  are 
independent  of  the  productivity  of  his  labor,  his  power  of  labor 
will  produce  only  for  the  master  who  has  bought  it,  and  to  whom 
alone  its  fruits  will  fall.  Let  him  beware,  then,  of  falling  into  the 
snares  that  will  be  set  to  induce  him  to  make  his  labor  more  pro- 
ductive,—  say  the  offer  of  work  "  by  the  job,"  or  even  a  share  in 
the  profits.  If  he  is  victimized  by  these  artifices,  which  are  purely 
baits  to  wring  from  him  the  maximum  of  production,  he  will  be 
simply  playing  the  master's  game  without  benefiting  himself. 

But  can  he  not  trust  that  he  will  improve  his  position  by  keeping 
down  his  expenses  and  living  soberly?  Again,  let  him  beware,  for 
that  would  make  his  lot  the  harder.  Since  the  rate  of  wages  is 
always  on  the  level  of  the  bare  means  of  existence,  as  soon  as  the 
laborer  learns  to  reduce  them,  wages  will  fall  in  like  proportion. 
If  the  modern  workman  were  simple  enough  to  accustom  himself 
to  subsist  on  potatoes  like  the  Irishman,  or  on  a  handful  of  rice 
like  the  Chinese  coolie,  his  wages  would  soon  be  merely  the  sum 
that  is  absolutely  necessary  for  the  purchase  of  a  few  sacks  of 
potatoes  or  bushels  of  rice.  His  frugality  and  his  thrift  would  be 
turned  against  him,  and  he  would  be  ensnared  by  the  very  virtues 
which  he  is  exhorted  to  practise. 

Can  he  not,  at  least,  expect  something  from  the  progress  made 
in  production  and  the  increase  of  wealth?     No!  that  would  be 


DISTRIBUTION,  49/ 

the  very  worst  of  all  for  him.  If  scientific  discoveries  were  to 
improve  machinery,  and  thus  lower  tlie  value  of  food  and  other 
necessary  articles,  his  wages,  which  are  regulated  by  them,  would 
be  decreased  in  the  same  degree.  Were  such  progress  to  be  made 
that  an  hour's  labor  would  produce  enough  for  one  man's  daily 
wants,  the  workman  would  still  have  to  labor  for  twelve  hours  : 
in  the  first  hour  he  would  earn  his  wages,  the  other  eleven  would 
go  to  his  employer's  gain. 

This  theory,  which  is  impressive  in  appearance,  is  really  a  play 
upon  words.  If  we  take  it  literally  as  meaning  that  the  workman's 
wages  can  never  rise  above  what  he  absolutely  requires  to  live  on, 
it  is  obviously  contradicted  by  facts.  The  purely  material  wants 
of  animal  life  are,  on  the  whole,  of  no  very  great  importance  for 
man.  Irish  peasants  and  French  peasants,  when  far  from  towns, 
live  on  practically  nothing.  If,  then,  this  indispensable  minimum 
for  the  support  of  physical  existence  were  to  determine  the 
normal  rate  of  wages,  wages  would  be  far  lower  than  what  they 
actually  are  in  all  countries.  A  literal  interpretation  of  the  theory 
would  not  explain  why  the  rate  of  wages  should  be  higher  in 
one  employment  than  in  another.  Engravers  and  mechanical 
engineers  receive  twice  or  thrice  as  much  as  navvies.  Do  they 
require  a  greater  quantity  of  nitrogen  or  carbon?  Why  are 
the  wages  of  agricultural  laborers  lower  in  winter,  when  they 
are  obliged  to  spend  more  on  fires  and  clothing,  and  higher  in 
summer,  the  very  time  of  the  year  which  renders  life  so  much 
easier  for  the  poor  that  poets  have  been  justified  in  calling  it  "  the 
poor  man's  season  "  ?  It  does  not  explain  why  wages  are  higher 
in  France  than  they  are  in  Germany,  or  higher  in  the  United 
States  than  in  England;  for  there  is  no  reason  why  a  Frenchman 
should  eat  more  than  a  German,  or  an  American  more  than  an 
Englishman.  Nor  does  it  account  for  the  undeniable  fact  that 
wages  to-day  are  higher  than  they  were  a  century  ago.  Do  we 
eat  more  dian  our  forefathers  did  ? 

If  we  discard  this  hteral  interpretation,  we  are  told  that  the  law 
refers  not  only  to  the  minimum  which  is  requisite  for  the  support 


498  PRINCIPLES    OF    POLITICAL    ECONOMY. 

of  man's  physical  existence,  and  is  almost  as  unchangeable  as  his 
physical  constitution,  but  also  to  the  minimum  which  is  necessary 
for  the  satisfaction  of  the  complex  wants  of  man  living  in  a  civil- 
ized environment,  a  minimum  which  varies  according  to  the  par- 
ticular degree  of  civilization.  In  this  broader  sense,  the  theory 
becomes  far  more  probable  ;  but  at  the  same  time  it  grows  far  less 
appalling ;  indeed,  it  appears  to  be  almost  too  reassuring.  Does 
the  theory  merely  mean  that  the  workman's  wages  are  regulated  by 
the  habits  and  standard  of  life  of  the  laboring  classes,  by  the 
whole  body  of  physical  and  social,  natural  and  artificial  wants 
which  characterize  the  environment  in  which  he  has  to  live  ?  Is 
it  further  granted  that  instead  of  being  "brazen,"  this  minimum  is 
elastic,  mobile,  and  variable  according  to  the  race,  the  climate, 
and  to  the  age,  and  that  it  ceaselessly  and  inevitably  tends  to  rise 
in  proportion  to  the  increase  in  number  and  kind  of  the  wants, 
the  desires,  and  the  requirements  of  civilized  man  ?  If  so,  we  will 
not  gainsay  the  theory ;  and  with  all  our  hearts  we  hope  that  it  is  a 
true  one,  for  in  that  case  it  should  be  called  not  the  Law  of  Brass, 
but  the  Golden  Law  of  wages.     But  the  hope  is  too  great  a  one. 

If  we  ask  the  disciples  of  Lassalle  why  the  wages  of  French  day- 
laborers  in  rural  districts,  which  formerly  only  allowed  them  to 
eat  black  bread  and  wear  wooden  clogs,  have  not  now  risen  so  as 
to  enable  them  to  take  to  white  bread  and  use  shoes  as  foot-gear, 
we  are  told,  "  It  is  the  new  wants  and  the  new  habits  which  have 
caused  the  rise  in  wages."  So  be  it ;  but  if  they  take  to  eating 
meat  with  their  bread  and  to  wearing  flannel  shirts  under  their 
waistcoats,  are  we  to  assume  that  their  wages  will  rise  so  as  to 
enable  them  to  satisfy  these  new  Avants?  If  so,  what  a  happy 
prospect  they  have  !  Henceforth  the  workman's  fare  need  not  be 
adjusted  to  his  wages ;  his  wages  will  be  fixed  according  to  what 
he  eats  and  how  he  lives.  Under  this  rosy  light  the  Law  of  Brass 
iias  been  set  forth  in  Wcaltlt  and  Proprss,  a  book  by  Mr.  Gun- 
ton,  an  American. 

As  we  have  previously  rejected  the  doctrine  which  bases  the 
value  of  things  upon  their  cost  of  production,  we  should  be  incon- 
sistent in  admitting  its  application  to  the  case  of  manual  labor. 


DISTRIBUTION,  499 

Section  2.    The  Theory  of  the  Productivity  of  Labor. 

The  optimistic  school  upholds  the  reverse  principle  that  wages 
are  regulated  by  the  productivity  of  the  workman's  labor. 

The  theory  is  quite  a  recent  one.  It  was  first  set  forth  by  General 
Francis  Walker,  the  American  economist,  in  his  book  on  The  Wages 
Question,  and  was  adopted  by  Stanley  Jevons.  It  also  obtained 
the  support  of  three  of  the  author's  colleagues,  MM.  Beauregard, 
Chevallier,  and  Villey,  in  three  works  on  wages,  which  they  simul- 
taneously published,  and  all  of  which  were  crowned  by  the  Insti- 
tute of  France. 

The  workman  is  never  tired  of  demanding  "  the  whole  of  the 
product  of  his  labor,"  the  phrase  which  forms  part  of  the  platform 
of  the  labor  party.  Such  a  claim  would  only  be  justified  if  the 
laborer  himself  had  supplied  all  the  elements  of  production,  not 
manual  labor  alone,  but  also  the  raw  material  and  the  implements 
which  the  autonomous  producer  does  provide.  Under  the  wages 
system  these  conditions  are  not  fulfilled.  Once  at  a  public  meet- 
ing a  workman  shouted  out  the  vulgar  but  vivid  phrase,  "The  man 
who  makes  the  soup  should  eat  it  !  "  Quite  correct ;  but  is  it  the 
workman  who  has  made  the  soup  ?  No  !  it  is  the  employer  who 
has  provided  the  kettle,  i.e.  the  instrument ;  and  the  ox  which 
gives  the  beef,  i.e.  the  raw  material ;  and  none  but  he  sets  the  pot 
boiling.  Thus  the  workman's  claim  to  have  all  the  soup  for  him- 
self, to  obtain  the  whole  of  the  produce  of  his  labor,  is  utterly 
unreasonable  under  present  economic  conditions. 

The  present  theory,  however,  does  not  assert  that  wages  will  be 
equal  to  the  entire  value  produced  by  the  workman's  labor ;  for 
in  that  case  the  employer  would  gain  nothing,  would  doubtless 
lose,  and  would  therefore  abstain  from  business.  It  merely  holds 
that  the  workman  receives  in  the  form  of  wages  all  that  remains 
of  the  entire  product  after  a  deduction  has  been  made  of  all  the 
shares  which  are  due  to  the  other  collaborators,  e.g.  after  a  deduc- 
tion of  the  interest  on  the  capital  which  he  does  not  supply,  and 
of  the  insurance  premium  against  the  risks  which  he  does  not  bear. 


500  PRINCIPLES    OF    POLITICAL    ECONOMY, 

According  to  this  theory,  the  value  of  labor  cannot  be  likened  to 
the  value  of  a  commodity,  which  is  subjected  solely  to  the  law  of 
supply  and  demand  as  regulated  by  competition.  It  is  granted 
that  the  laborer  is  an  instrument  of  production,  but  it  is  added 
that  the  value  of  an  instrument  of  production  depends  on  its 
productivity.  When  a  capitalist  hires  a  piece  of  land,  is  not  the 
rent  which  he  has  to  pay  calculated  according  to  the  productivity 
of  the  land?  When  he  hires  labor,  then,  why  should  not  the  rate 
of  wages  be  in  proportion  to  the  production  of  that  labor? 

If  this  theory  is  a  sound  one,  it  should  be  as  encouraging  as  the 
Brazen  Law  is  discouraging.  '  For  if  the  rate  of  wages  depends  on 
the  productivity  of  the  workman's  wages,  his  destiny  can  be  canned 
by  his  own  hands.  The  more  he  produces,  the  more  he  will 
gain ;  his  wages  will  infallibly  be  increased  by  everything  that 
tends  to  increase  and  improve  his  productive  activity ;  viz.  physi- 
cal development,  moral  virtues,  technical  education,  inventions, 
and  machinery. 

In  fine,  the  results  of  the  contract  of  wages  would  be  even  more 
advantageous  than  those  of  actual  partnership  or  profit-sharing, 
for  the  workman,  and  none  but  he,  would  profit  by  the  entire 
increase  of  the  productivity  of  labor ;  he  would  literally  receive  the 
whole  of  the  produce  of  his  labor,  after  the  natural  subtraction 
of  interest  on  the  capital  which  he  does  not  supply,  and  of  the 
insurance  premium  against  the  risks  for  which  he  is  not  liable. 
This  harmonizes  with  Stanley  Jevons's  statement,  that  the  laborer's 
wages  always  ultimately  coincide  with  the  product  of  his  labor, 
after  a  deduction  has  been  made  of  rent,  taxes,  and  interest. 

The  bare  enumeration  of  these  consequences  shows  us  in  what 
measure  the  theory  is  in  opposition  to  actual  facts.  We  have 
already  granted  that  the  productivity  of  labor  influences  the  rate 
of  wages  ;  for  by  increasing  the  general  wealth  of  a  country  it 
swells  the  whole  mass  which  is  to  be  divided,  and  thus  comes  to 
augment  the  respective  portion  due  to  each  of  the  sharers,  in 
whom  workmen  arc  included.  It  further  affects  the  rate  of  wages  ; 
for  as  soon  as  labor  is  more  productive,  the  demand  for  it  should 


DISTRIBUTION.  .  5OI 

increase.  But  one  of  the  most  essential  elements  is  left  out  of 
account,  —  the  abundance  or  scarcity  of  manual  labor,  the  effect 
of  which  is  usually  the  most  powerful  of  all.  It  is  not  probable 
that  tlie  productivity  of  labor  in  the  United  States  is  smaller  now 
than  it  was  twenty  years  ago ;  but  in  that  country  the  rate  of 
wages  has  perceptibly  fallen,  for  the  proletariat  class  has  been 
largely  added  to,  both  by  the  immigration  of  foreign  laborers  and 
by  the  appropriation  of  the  available  land. 

Section  3.    The  Theory  of  the  Wages-Fund. 

For  many  years  this  was  the  classical  theory,  especially  in  the 
opinion  of  English  economists ;  but  it  is  now  beginning  to  be 
abandoned.  Like  the  Brazen  Law,  it  starts  from  the  principle 
that  the  price  of  manual  labor,  that  is  to  say,  wages,  is  determined 
by  the  law  of  supply  and  demand,  and  these  two  factors  it  defines 
in  the  following  terms.  The  supply  is  furnished  by  the  workmen, 
the  poorer  classes,  who  seek  for  work  whereby  to  earn  their  living, 
and  offer  the  use  of  their  arms  for  that  purpose.  The  demand 
is  composed  of  capitalists  who  need  investments  ;  for  the  only 
mode  of  employing  capital  productively  is  to  devote  it  to  the 
supplying  of  work  to  workmen.  The  ratio  between  these  two 
elements  will  determine  the  rate  of  wages. 

In  Cobden's  picturesque  and  often  quoted  formula  the  law 
means  that  "  whenever  two  workmen  run  after  one  master,  wages 
fall ;  whenever  two  masters  run  after  one  workman,  wages  rise." 
When  couched  in  these  terms  the  theory  may  be  regarded  as 
irrefutable,  and  virtually  differs  little  from  our  own  account  of  the 
matter. 

But  the  theory  has  been  damaged  by  an  attempt  to  ascribe  to 
it  an  exactness  which  it  does  not  possess,  and  to  convert  the  law 
of  wages  into  an  arithmetical  process. 

Take  the  circulating  capital  of  a  country,  or  the  wages-fund,  as 
the  English  term  it,  because  they  hold  that  its  purpose  is  to  sup- 
port the  laborers  during  the  course  of  their  labor.  Then  take  the 
number  of  laborers.     Divide  the  first  figure  by  the  second,  and 


502  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  quotient  will  instantly  give  the  sum  total  of  wages.  Let 
;2{^400,ooo,ooo  be  the  circulating  capital,  and  10,000,000  be  the 
number  of  the  laborers,  say  in  France,  and  the  yearly  average 
wages  will  be  ^40. 

This  theory  clearly  demands  that  wages  can  vary  only  as  one  of 
the  two  factors  varies.  Therefore  a  rise  in  wages  is  possible  only 
in  the  two  following  cases  :  — 

Firstly.  If  the  wages-fund —  i.e.  the  mass  to  be  distributed, 
the  dividend  —  happens  to  increase,  and  nothing  but  saving  can 
increase  it. 

Secondly.  If  the  laboring  population,  i.e.  the  divisor,  diminishes. 
Now  it  can  only  diminish  in  proportion  as  the  workmen  apply  the 
principles  of  Malthus,  and  either  abstain  from  marriage  or  have 
few  children.  The  conclusion  drawn  by  John  Stuart  Mill,  the 
ablest  exponent  of  the  doctrine  of  the  wages-fund,  was  that  the 
only  safeguard  for  wages-earners  was  a  restriction  of  the  increase 
in  population. 

In  this  shape  the  theory  is  hardly  more  encouraging  for  the 
working  classes  than  was  the  Law  of  Brass,  and  it  practically 
amounts  to  the  same  result.  In  its  opinion,  the  divisor  (the  num- 
ber of  the  working  classes)  must  increase  far  more  rapidly  than 
the  dividend  (the  amount  of  capital  available)  ;  whence  it  follows 
that  the  quotient  (wages)  must  tend  to  diminish,  till  it  has  fallen 
to  the  minimum,  beneath  which  it  cannot  descend.  The  reason 
for  this  is,  that  the  production  of  children  is  a  far  easier  matter 
than  the  production  of  capital.  The  latter  presupposes  abstinence  ; 
the  former  implies  the  reverse.  Population  is  multiplied  sponta- 
neously ;  capital  is  not. 

This  doctrine  of  the  wages-fund  is  bound  up  with  a  conception 
of  capital,  with  which  we  have  previously  disagreed.  Every 
human  society  is  supposed  to  possess  a  species  of  provision  store, 
from  which  we  can  draw  at  will  for  the  support  of  the  laborers ; 
hence  it  is  inferred  that  wages  can  be  paid  only  out  of  the  produce 
oi past  labor,  and  never  out  of  the  produce  oifiitiii-e  labor.  As  a 
matter  of  fact,  what  labor  produces  daily  is  enough  to  support  labor. 


DISTRIBUTION,  503 

We  must  also  note  that  the  professed  exactness  of  the  theory 
is  altogether  deceptive.  In  this  arithmetical  sum  which  we  are 
asked  to  solve,  the  three  terms  of  the  problem  are  three  un- 
knowns ;  in  the  division  we  have  to  perform,  the  dividend,  as  well 
as  the  divisor,  is  represented  by  x.  How,  then,  can  we  find  the 
quotient? 

The  following  is  the  real  statement  of  the  case  :  the  dividend 
is  not  the  amount  of  capital  in  the  country,  which  could  be  calcu- 
lated, if  need  be  ;  but  it  is  merely  that  portion  of  their  capital 
which  employers  wish  to  spend  'in  manual  labor.  The  divisor  is 
not  represented  by  the  total  population  of  the  country  ;  it  is  com- 
posed of  those  laborers  who  have  to  hire  out  the  use  of  their 
arms,  and  from  these  we  have  to  deduct  all  autonomous  producers, 
who  may  be  verj^  numerous.  Thus,  on  a  nearer  view,  the  theory 
is  resolved  into  this  :  the  rate  of  wages  can  be  obtained  by  dividing 
the  whole  sum  distributed  in  wages  by  the  number  of  those  who 
receive  wages.     There  was  no  necessity  to  prove  that. 

III.    The  Rise  in  Wages. 

The  gradual  rise  in  wages,  especially  for  the  last  half-century,  is 
an  indisputable  fact.  Millions  of  statistical  observations,  which 
have  been  collected  in  all  European  countries,  justify  the  conclu- 
sion that  in  this  space  of  time  agricultural  wages  have  about 
doubled,  and  that  wages  paid  in  manufactures  have  increased  by 
two-thirds,  or  thereabouts. 

For  this  conclusion  to  have  any  real  value  it  should  be  corrobo- 
rated by  a  mass  of  figures,  inasmuch  as  nothing  is  proved  by  a 
few  separate  figures,  which  may  have  been  arbitrarily  chosen. 
The  requisite  tables  cannot  be  given  here,  but  in  La  AIain-d''o:iivre 
et  son  prix,  a  book  from  the  pen  of  M.  Beauregard,  Professor  in 
the  Faculty  of  Law  of  the  University  of  Paris,  they  may  be  found, 
together  with  a  mass  of  substantiating  evidence.  A  general  view 
of  the  subject  will  be  obtained  from  the  table  prepared  by  M.  de 
Foville,  which  we  here  subjoin.   The  income  of  a  family  of  French 


504  PRINCTPT.ES    OF    POLITICAL    ECONOMY. 

agricultural  laborers  for  a  century  past  is  thus  set  forth  by  M.  de 
Foville  :  — 

1788 £8  1852 /22 

1813 16      1862 28165. 

1840 20      1872 32 

The  rise  has  been  much  greater  in  the  rural  districts  than  in  the 
towns,  and  in  the  provinces  than  in  the  capital ;  this  is  explained 
by  the  constant  emigration  from  the  country  into  the  towns,  and 
from  the  provinces  to  the  capital. 

Now,  what  are  we  to  infer  from  this  rise?  According  to  the 
optimistic  school,  the  improvement  in  the  condition  of  the  work- 
ing classes  is  certain,  considerable,  and  indefinite ;  further,  it  is 
spontaneously  effected,  and  therefore,  in  the  interests  of  the  work- 
men themselves,  the  only  policy  is  one  of  laisser  fai7-e. 

This  view  of  the  matter  is  not  shared  by  the  socialists,  their 
leading  principle  being  that  under  the  present  economic  organiza- 
tion the  rich  always  become  richer,  and  the  poor  never  cease  to 
grow  poorer.  They  cannot  deny  the  material  fact  of  the  rise  in 
wages,  for  it  is  incapable  of  denial ;  but  they  assert  that  it  proves 
nothing  as  regards  the  improvement  of  the  lot  of  the  working 
classes,  and  rest  their  case  on  the  following  reasons  : 

Firstlv.  The  rise  in  wages  is  nominal,  and  not  actual ;  it  is 
merely  an  optical  illusion  occasioned  by  the  depreciation  of  the 
value  of  money.  If,  during  the  last  half  century,  money  has  lost 
half  its  value,  how  does  the  laborer  gain  by  receiving  as  his  wages 
a  florin  instead  of  a  shilling?     He  is  no  better  off  for  that. 

There  is  some  truth  in  this  assertion.  It  is  a  fact  that  money 
has  lost  a  portion  of  its  value,  especially  since  the  discovery  of  the 
Australian  and  Californian  gold-fields,  in  the  year  1850  and  there- 
abouts ;  this  fill  in  value  of  the  monetary  standard  has  caused  a 
general  rise  in  prices,  and  consequently  an  income  of  ;^8o  at  the 
present  day  does  not  give  double  the  ease  and  comfort  which 
;^40  yielded  in  1850.  We  must  now  see  whether  this  deprecia- 
tion of  the  value  of  the  money,  or,  what  is  the  same  thing,  the 
general  rise  in  prices,  has  been  equal  to  the  general  rise  in  wages. 


DISTRIBUTION.  505 

Now  it  is  perfectly  certain  that  prices  have  not  doubled ;  their 
average  increase  has  not  even  been  two-thirds ;  the  depreciation 
of  money  is  usually  calculated  to  be  a  third  at  the  very  outside. 
Therefore  the  workman  who  now  receives  ;£8o,  or  only  ^^67, 
instead  of  the  ;^40  he  was  paid  forty  years  ago,  enjoys  an 
income  which  is  not  only  larger  in  terms  of  money,  but  is  also  a 
more  powerful  instrument  of  purchase  and  of  consumption.  The 
rise  in  wages,  though  partly  nominal,  is  also  partly  real. 

For  a  more  accurate  estimate  of  the  improvement  in  general 
welfare  that  this  increase  in  wages  represents,  we  ought  to  analyze 
the  workman's  expenses,  and  examine  what  rise  in  price  has 
been  sustained  by  each  of  the  principal  articles  in  his  budget. 
More  than  once  already  this  task  has  been  carefully  performed, 
and  the  result  shows  a  clear  rise.  Food,  such  as  meat,  vegeta- 
bles, wine,  butter,  and  so  forth,  has  largely  increased  in  price, 
indeed,  has  more  than  doubled ;  house  rent  has  grown  in  even 
higher  proportions  ;  and  these  two  are  very  important  items.  But 
bread,  which  is  the  principal  article  in  the  budget,  is  not  percepti- 
bly dearer ;  manufactured  goods,  such  as  clothes,  are  considerably 
cheaper ;  and  there  is  a  further  decrease  under  the  headings  of 
transport,  intercommunication,  and  education. 

Secondly.  The  socialists  add  :  Even  admitting  that  the  rise  in 
wages  is  partly  real,  in  any  case  it  is  not  in  proportion  to  the 
development  of  the  general  wealth,  and  to  the  increase  of  the 
incomes  of  the  other  classes  of  society.  Let  us  suppose  that  fifty 
years  ago  the  whole  sum  to  be  divided  between  the  propertied  classes 
and  the  proletariat  was  ^400,000,000  sterling,  or;^20o,ooo,ooo  for 
each.  Yet  the  total,  now,  has  risen  to  ^800,000,000,  —  the  proleta- 
riat receiving ;^28o,ooo,ooo,  and  the  monied  classes, ;^5  20,000,000. 
Then  the  rise  in  wages,  though  real,  would  not  mean  an  actual  rise 
in  condition;  for  though  the  wages-earners'  share  would  have 
increased  by  40  per  cent,  the  share  of  the  other  classes  would 
have  risen  160  per  cent,  or  four  times  more.  The  wages-earners 
would  be  better  off,  but  they  would  not  feci  richer ;  for  it  must 
not  be  forgotten  that  wealth  is  purely  relative,  and  such  is  man's 


506  PRINCIPLES    OF    POLITICAL    ECONOMY. 

nature  that  comfort  itself  is  regarded  as  misery,  if  it  is  contrasted 
with  the  opulence  of  one's  neighbors. 

This  argument  against  the  present  social  order  is  perhaps  one 
of  the  strongest  that  the  socialists  keep  in  their  armory;  for,  from 
the  standpoint  of  social  justice,  the  workers  have  a  right  not  only 
to  some  improvement  of  their  condition,  but  also  to  an  increase 
of  income  at  least  equal  to  that  gained  by  the  other  classes  of 
society.  As  a  matter  of  fact,  this  equal  increase  has  not  been 
made.  If  we  look  at  the  official  list  of  the  property  transmitted 
in  France  by  inheritance  or  donation,  we  find  that  the  figures 
which  were  2,509,000,000  francs  in  1835,  and  3,133,000,000 
francs  in  1856,  rose,  in  1885,  to  6,429,000,000,  though  in  18S8 
there  was  a  slight  fall  to  6,330,000,000.  As  the  yearly  income  was 
clearly  in  proportion  to  the  entire  sum,  we  may  lay  down  that  the 
total  of  all  private  fortunes  has  been  more  than  trebled  in  fifty 
years,  and  more  than  doubled  in  thirty  years.  This  increase  is 
certainly  far  higher  than  the  increase  of  wages  ;  for  that,  to  take  the 
most  optimistic  calculations,  does  not  exceed  66  or  100  per  cent. 

IV.     Whether  there  are  any  Means  of  improving  the 
Condition  of  the  Wages-Earners. 

There  are  three  ways  by  which  an  attempt  can  be  made  to 
improve  the  condition  of  the  wages-earners,  and  each  of  them 
has  been  extolled  by  its  particular  school. 

There  is  the  strike,  or  the  conflict  between  workmen  and 
employers. 

There  is  the  law,  or  State  interference. 

There  is  co-opcratlon,  either  between  the  master  and  his  men, 
or  between  the  workmen  themselves. 

Before  we  examine  these  modes,  we  should  ask  whether  their 
efficacy  can  be  depended  on. 

The  more  rigid  members  of  the  Liberal  school  disbelieve  in  the 
efficacy  of  any  of  them.  As  in  their  opinion  the  rate  of  wages 
is  determined  by  natural  laws,  it  cannot  be  influenced   by  any 


DISTRIBUTION.  50/ 

artificial  cause.  To  hold  that  wages  can  be  made  to  rise  by  a 
combination  of  workmen,  by  a  chapter  of  law,  or  by  any  form  of 
association,  is  as  absurd  as  to  believe  that  fine  weather  can  be 
caused  by  pushing  forward  the  needle  of  the  barometer  with  one's 
finger.  If  wages  ever  rise  after  a  strike,  that  is  because  they 
were  bound  to  rise  in  any  case.  The  strike  has  only  been  the 
light  tap  on  the  glass  of  the  barometer  that  stirs  the  always  slug- 
gish needle  to  follow  the  movement  of  the  mercury,  and  to  assume 
more  quickly  its  position  of  equilibrium.  In  fact,  if  the  rate  of 
wages  is  to  rise  at  all,  it  will  do  so  spontaneously ;  if  it  has  no 
inclination  to  rise,  it  cannot  be  forced  up.  In  all  normal  societies 
the  tendency  is  to  rise.  All  that  can  be  done  is  to  aid  this  evolu- 
tion by  giving  freer  play  to  the  forces  which  have  acted  hitherto ; 
viz.  competition  and  freedom  of  contract.  This  might  be  effected 
by  the  formation  of  the  Labor  Exchanges  proposed  by  M.  de 
IMolinari,  in  which  the  supply  of  and  demand  for  manual  labor 
from  all  parts  might  be  brought  into  touch,  and  from  which  labor 
might  obtain  a  mobility  equal  to  that  possessed  by  capital. 

This  tranquil  mode  of  philosophizing  has  discredited  the  Liberal 
school  more  than  anything  else  has,  and  it  is  justified  neither  by 
observation  of  facts  nor  by  scientific  reasoning. 

In  reality,  it  is  beyond  question  that  the  workman's  condition 
has  been  greatly  improved  by  strikes,  or  fears  of  strikes,  or  the 
formation  of  powerful  bodies  tending  towards  that  end  :  this  is 
decisively  proved  by  the  history  of  the  laboring  classes  in  Eng- 
land for  the  last  fifty  years.  Further,  it  is  beyond  dispute  that 
State  interference  has  brought  about  the  same  result  in  all  coun- 
tries, in  Germany  in  particular.  Although  profit-sharing  and  co- 
operation have  not  yet  borne  much  fruit,  still  the  progress  made 
allows  us  to  count  on  their  efficacy. 

As  far  as  theory  goes,  we  freely  acknowledge  that  the  rate  of 
wages  is  determined  by  natural  laws,  —  in  a  word,  by  the  law  of 
supply  and  demand ;  but  that  does  not  negative  its  possible  modi- 
fication by  the  will  of  man  as  excited  by  combination,  co-opera- 
tion, or  State  interference.     To  return  to  the  figure  used  above, 


508  PRINCIPLES    OF    POLITICAL    ECONOMY, 

it  would  be  ridiculous  to  profess  to  alter  the  movements  of  the 
barometer  by  pushing  the  needle  with  the  fmger ;  but  it  is  per- 
fectly legitimate  and  scientific  to  assert  that  it  can  be  altered  by 
a  modification  of  its  atmospheric  surroundings,  say  by  carrying 
it  up  a  mountain  or  by  putting  it  under  the  influence  of  a  pneu- 
matic engine.  Similarly  we  can  lawfully  attempt  to  modify  the 
condition  of  wages-earners  by  effecting  changes  in  their  economic 
environment,  and  by  acting  on  the  causes  which  sometimes  depress 
and  sometimes  elevate  the  rate  of  wages. 

Besides,  even  if  the  price  of  manual  labor  is,  like  the  price  of 
every  other  article,  determined  by  the  law  of  supply  and  demand, 
that  does  not  prove  that  this  state  of  things  is  normal ;  on  the 
contrary,  it  is  abnormal,  —  we  might  even  say,  against  nature.  It  is 
not  natural  that  human  labor,  which  is  the  agent  in  all  production, 
should  be  merely  a  commodity  which  is  quoted  on  the  market 
and  is  subject  to  the  same  variations  in  price  as  are  experienced 
by  cottons  and  by  coals.  There  is  a  reaction  against  this  state  of 
things, — a  reaction  in  which  the  workmen  are  supported  by  public 
opinion  and  by  law.  They  now  claim  to  be  treated  not  as  filings, 
but  as  men ;  they  demand  not  the  price  which  the  state  of  the 
market  assigns  for  a  bale,  but  the  share  which  justice  apportions 
to  a  collaborator  or  joint  worker  in  the  labors  carried  on  by  society 
as  a  whole.  They  therefore  ask  the  other  sharers  to  draw  a  little 
closer  together  and  give  them  room.  This  idea  that  the  wages- 
system  should  be  a  partnership  —  even  though  its  outward  forms 
should  remain  as  they  are  —  cannot  but  profoundly  influence  the 
nature  of  the  contract  of  wages,  and,  consequently,  the  rate  of 
wages. 

No  doubt  this  rise  in  wages  cannot  be  boundless,  and  its  limits 
will  be  somewhat  narrow,  if  we  are  to  suppose  that  the  produc- 
tion of  wealth  remains  the  same  as  it  now  is.  We  may  simply 
in  passing  throw  out  the  suggestion  that  perhaps  a  general  rise  of 
wages  would  enable  the  workman  to  make  progress  on  all  lines, 
and  that  consequently  the  productivity  of  labor,  and  therefore  the 
amount  to  be  shared,  might  both  be  increased. 


DISTRIBUTION.  509 

If  the  whole  amount  to  be  divided  is  not  augmented,  a  rise  in 
wages  can  only  be  brought  about  by  a  reduction  of  profits ;  if, 
then,  we  consider  how  greatly  profits  are  diminished  by  competi- 
tion, and  agree  that  the  employer  must  be  allowed  to  retain 
enough  to  recompense  him  for  his  risks,  remunerate  him  for  his 
labor,  and  pay  the  interest  on  his  capital,  we  shall  have  to  confess 
that  the  margin  is  somewhat  narrow. 

Certainly,  wages  can  rise  without  involving  any  diminution  in 
profits,  if  only  the  price  of  the  products  is  raised  in  proportion. 
That  is  what  manufacturers  naturally  strive  to  do,  for  then  the 
public  has  to  pay  for  the  increase  in  wages  which  they  have  been 
obliged  to  grant.  But  this  rise  in  prices  is  borne  by  the  con- 
sumer, and  ultimately,  perhaps,  by  the  wages-earners,  who  form 
the  bulk  of  consumers. 

V.     Strikes. 

To  strike  is  for  men  to  concert  together  and  refuse  to  continue 
work ;  a  strike,  therefore,  presupposes  a  prior  understanding,  i.e. 
combination.  This  right  of  combination  has  been  only  very 
recently  recognized  in  various  countries  ;  in  France  by  the  law  of 
1864.  In  right,  its  legitimacy  should  be  beyond  dispute ;  for 
if  we  grant  that  labor  is  a  commodity  like  any  other  article,  every 
man  should  be  free  to  refuse  to  surrender  his  commodity  except 
on  the  conditions  which  satisfy  him. 

Strikes  are  a  mode  of  warfare,  and  therefore  share  the  disad- 
vantages of  war.  They  entail  an  enormous  waste  of  productive 
force;  —  the  statistical  department  of  the  United  States'  Labor 
Bureau  calculates  that  the  losses  caused  by  strikes  and  lockouts 
during  the  six  years,  1SS1-18S6,  amounted  to  $98,000,000;  — 
they  cause  great  sufferings,  and  leave  to  rankle  in  the  hearts  of  the 
vanquished  (be  they  workmen  or  employers)  resentment  which 
prepares  the  way  for  future  conflicts.  But  it  cannot  be  denied 
that  this  violent  method  has  helped  to  bring  up  the  rate  of 
wages  by  compelling  masters  to  give  their  men  a  larger  share. 


510  PRINCIPLES    OF    POLITICAL   ECONOMY. 

The  efficacy  of  strikes  must  not  be  gauged  from  the  statistics  of 
those  which  have  succeeded  or  have  failed.  One  successful  strike 
may  raise  wages  in  a  host  of  industries  ;  and  moreover,  the  ever- 
present  fear  of  a  strike  does  more  to  raise  the  rate  of  wages  than 
even  an  actual  strike.  We  must  observe  that  the  success  of  a 
strike,  just  as  the  favorable  issue  of  a  war,  demands  previous 
preparation  by  a  powerful  organization.  An  accidental  and  tem- 
porary combination  is  not  enough.  Permanent  and  strong  asso- 
ciations are  needed,  so  that  their  method  of  action  may  be  the 
threat  of  a  strike,  rather  than  a  definite  strike.  The  more  power- 
ful these  bodies  are,  and  the  easier  their  formation,  the  fewer 
strikes  there  will  be ;  just  as  war  in  Europe  is  largely  prevented 
by  the  great  armies  kept  up  by  every  State.  Thus  the  English 
Trade-Unions  (which  correspond  to  the  chambrcs  syndicales 
d^ouvrkrs  in  France)  have  become  a  power  in  the  country,  and 
have  greatly  improved  the  condition  of  the  working  classes. 

The  trade-unions  are  very  wealthy  and  have  many  thousand 
members  (the  numbers  of  the  Amalgamated  Society  of  Working 
Engineers  rising  to  60,000)  ;^  they  are  directed  by  prudent  and 
distinguished  men,  some  of  whom  have  been  returned  to  the 
House  of  Commons,  and  their  great  Annual  Congresses  excite 
much  interest.  Up  to  the  present,  their  influence  has  not  been 
diverted  into  socialistic  directions,  but  has  been  devoted  to  the 
more  practical  aim  of  an  increase  in  wages  or  a  diminution  of 
the  length  of  the  working  day.  However,  their  methods  have 
not  always  been  of  the  most  intelligent  kind.  They  have  shown 
moderation  in  their  use  of  the  formidable  weapon,  strikes  ;  but, 
being  full  of  the  idea  that  the  price  of  manual  labor  dcpentls  solely 
on  its  scarcity,  and  failing  'to  take  into  account  the  question  of 
its  productivity,  they  have  striven  to  restrict  the  supply  of  manual 
labor  in  every  possible  way,  by  limiting  the  number  of  apprentices, 
by  forbidding  piece-work,  and  by  discountenancing  natural  ways 
of  developing  the  workman's  power  of  labor.      Dy  thus  closing 

^  In  1890,  the  number  was  65,210.  See  official  Report  of  Twenty-third 
Annual  Trades-Union  Congress  (published  at  Manchester,  1S90). — J.  B. 


DISTRIBUTION,  5II 

their  ranks  they  have  turned  their  members  into  a  sort  of  aris- 
tocracy of  labor ;  but  this  has  ahenated  from  them  the  working 
masses  whose  occupations  require  no  period  of  apprenticeship,  in 
fact,  the  class  of  unskilled  laborers.^  The  latter,  therefore,  have 
become  more  and  more  accessible  to  socialistic  teaching,  in  pro- 
portion to  the  growing  conservatism  of  the  Trade-Unions.  (See 
Professor  Brentano's  article  on  the  working  classes  in  England 
in  the  Revue  (V Economic  poUticjue  for  July- August,  1890.) 

The  United  States  also  possesses  trade-unions,  but  besides  these 
there  is  the  well-known  organization  of  the  Knights  of  Labor, 
which  admits  all  unskilled  laborers. 

In  France  the  chatnbres  syndicales  d'ouvriers  (workmen's  unions) 
are  far  less  well  organized,  and  most  of  them  aire  composed  of  a 
very  minute  portion  of  the  respective  trades.  Unfortunately,  they 
make  up  for  this  paucity  of  numbers  by  a  strong  tendency  to 
violence  ;  and,  the  organization  being  weak,  the  working  classes 
do  not  derive  much  benefit  therefrom.  Their  masters  generally 
refuse  to  deal  with  these  bodies,  and  prevent  their  men  from 
joining  them.  This  is  a  mistaken  action  ;  for,  were  these  unions  to 
embrace  all  the  laboring  classes,  their  aims  would  become  far 
more  practical.  Still  we  cannot  agree  with  the  measure  lately 
passed  by  the  French  Chamber  of  Deputies,  which  would  oblige 
employers,  whether  they  will  or  no,  to  keep  workmen  who  have 
joined  these  unions. 

The  efficacy  of  these  fighting  bodies  arises  from  the  fact  that 
the  workman  who  joins  them  holds  a  much  stronger  position  as 
regards  his  employer.  Under  ordinary  conditions,  when  a  workman 
treats  single-handed  with  an  employer,  the  following  reasons  prac- 
tically compel  him  to  accept  the  price  offered  him  :  — 

Firstly.  The  capitalist  can  wait ;  but  the  workman  cannot,  for 
he  is  in  the  position  of  a  trader  who  is  absolutely  obliged  to  sell 

'  It  is  difticult  to  maintain  this  in  face  of  the  fact  that  the  list  of  trades' 
societies  represented  at  the  Congress  in  1890  included  the  three  unions  of 
Dock-laborers,  together  numbering  more  than  160,000  members.  —  J.  1!. 


512  PRINCIPLES    OF    POLITICAL    ECONOMV. 

his  goods  in  order  to  get  a  livelihood.  In  this  case  the  com- 
modity is  manual  labor. 

Secofidly.  The  employer  can  usually  do  without  a  particular 
isolated  workman ;  but  the  converse  is  not  equally  true.  Another 
workman  can  always  be  found ;  he  can  be  brought  from  another 
district,  or  from  abroad,  if  need  be  ;  nay,  machinery  can  be  intro- 
duced in  his  stead.  A  fresh  master  cannot  be  found  with  the 
same  ease  ;  he  cannot  be  imported  by  rail  or  by  steamer  ;  nor  can 
a  machine  be  put  to  do  his  work. 

Thirdly.  The  employer  is  better  acquainted  with  the  state  of 
the  market.  He  looks  further  ahead,  and  from  a  commanding 
position. 

But,  as  soon  as  our  workman  has  joined  together  with  his  fel- 
lows in  the  same  trade  and  has  formed  a  union,  the  positions  are 
equalized. 

Firstly.  The  workman  is  enabled  to  refuse  to  give  his  labor, 
and  can  be  supported  meantime  by  the  funds  of  the  society  and 
the  contributions  of  the  members. 

Secondly.  All  the  men  in  one  factory  become  banded  together, 
and  the  master  has  to  deal  with  all,  instead  of  with  only  one. 

Thirdly.  The  union  starts  intelligence-offices,  and  obtains  com- 
petent and  experienced  managers,  who  are  as  well  acquainted  with 
the  current  state  of  affairs  as  the  masters  themselves.  Hence,  the 
society  is  prevented  from  making  false  moves. 

VI.     State  Interference. 

State  interference  for  the  improvement  of  the  condition  of  the 
working  classes  can  be  carried  on  in  many  different  ways. 

Sechon  I.  The  most  radical  measure  —  the  demand  of  the 
militant  labor  party  —  is  to  fix  a  miniimim  wage.  In  our  opinion 
the  proposal  is  somewhat  absurd.  It  is  not  enough  for  workmen 
to  be  guaranteed  this  minimum  wage ;  they  must  also  be  assured 
of  finding  masters  who  will  employ  them  at  that  price.  Now,  no 
power  under  heaven  can  force  a  capitalist  to  employ  laborers  if 


DISTRIBUTION,  513 

he  does  not  derive  sufficient  profit  therefrom.  In  spite  of  the 
repeated  demands  of  the  labor  party,  this  experiment  of  fixing  a 
minimum  wage  has  not  yet  been  made  ;  but  history  shows  us  that 
law  has  several  times  exercised  its  authority  and  fixed  a  maximum 
wage.  Still  more  frequently  the  State  has  interfered  and  fixed  a 
maximum  price  for  some  commodity  or  other  (a  bread-tax  still 
exists  in  certain  places) .  But  the  lack  of  success  of  these  various 
legislative  measures  enables  us  to  conclude  a  fortiori  that  the 
legislator  is  powerless  to  fix  the  price  of  manual  labor. 

Section  2.  There  is  a  large  collection  of  legislative  proposals 
which  do  not  touch  the  wages-system  itself,  and  do  not  even  profess 
to  change  the  rate  of  wages.  The  end  in  view  is  to  improve  the 
condition  of  the  wages-earners,  either  by  duly  limiting  the  dura- 
tion of  their  labor,  or  by  guarding  them  against  the  grievous 
eventualities  which  may  proceed  from  their  position.  These  meas- 
ures are  now  being  brought  to  the  fore  in  all  the  parliaments  of 
Europe,  under  the  name  of  labor  legislation.  The  limits  of  this 
book  must  restrict  us  to  an  enumeration  of  them. 

Five  risks  hang  over  the  head  of  the  wages-earner ;  three  of 
them  he  shares  with  the  rest  of  mankind  :  namely,  illness,  old  age, 
and  death  ;  but  two  arise  out  of  his  peculiar  circumstances,  —  lia- 
bility  to  accidents  and  enforced  loss  of  work.  By  all  these  he  is 
rendered  incapable  (either  permanently  or  temporarily)  of  work- 
ing, and  consequently  of  earning  daily  bread  for  himself  and 
family.  Through  any  of  these  risks  the  man  of  the  proletariat, 
or  those  he  leaves  behind  him,  may  be  thrown  into  the  ranks  of 
pauperism,  or  even  of  crime.  Setting  aside,  then,  all  considera- 
tions of  justice,  it  is  a  social  interest  of  the  highest  importance  to 
guard  against  or  mitigate  the  consequences  of  these  risks.  Now 
is  individual  initiative,  when  taking  the  shape  of  saving  and  of 
association,  capable  of  meeting  these  dangers,  or  must  we  fall 
back  on  State  interference  ?  To  our  mind  saving,  and  especially 
the  poor  man's  saving,  is  not  enough. 

Still,  the  risk  of  illness  can  be  sufficiently  provided  for  by  the 
formation  of  benefit  societies.     With  the  aid  of  a  very  small  sub- 


514  PRINCIPLES    OF    POLITICAL    ECONOMY, 

scription,  which  does  not  usually  amount  to  more  than  a  shilling 
a  month,  these  institutions  are  able  to  meet  the  expenses  of  doc- 
tors and  dispensers  and  to  grant  a  certain  allowance  for  each  day 
of  sickness.  There  are  large  numbers  of  these  benefit  societies 
in  all  countries,  particularly  in  France,  and  they  are  generally 
favored  by  law  with*  certain  privileges,  which  cannot  be  dealt 
with  now. 

The  premium  of  insurance  against  accidents  is  not  much  higher, 
but  the  workman  would  scarcely  be  inclined  to  pay  it,  even  if  he 
had  the  necessary  funds ;  for  not  very  many  even  of  the  cultured 
classes  are  prudent  enough  to  insure  their  limbs  or  lives  against 
accidents. 

Insurance  against  old  age,  that  is  to  say,  the  accumulation  of 
sufficient  capital  to  yield  an  annuity  after  the  age  of  sixty  or  sev- 
enty-five, entails  sacrifices  which  a  laboring  man's  means  are 
totally  unable  to  support.  The  same  may  be  said  of  the  two 
other  dangers,  death  and  enforced  idleness. 

It  might  be  legitimately  urged  that  some  of  these  risks,  especially 
injuries  through  accidents  and  old  age,  ought  to  be  provided  for 
by  the  master.  As  a  matter  of  fact,  some  employers,  especially 
large  limited  liability  companies,  have  voluntarily  organized  com- 
pensation funds  against  accident,  and  superannuation  funds  for 
the  aged.  They  bear  the  whole  or  most  of  the  expenses  of  these, 
and  the  workmen  have  only  to  pay  a  small  share,  which  is  withheld 
from  their  wages. 

But  this  generous  private  action  of  certain  masters  has  not 
found  many  imitators,  either  through  want  of  sympathy  or  through 
lack  of  means,  for  the  successful  working  of  such  institutions  re- 
quires a  large  staff  and  a  considerable  amount  of  capital. 

According  to  the  French  law,  the  employer  is  only  strictly  liable 
for  accidents  which  the  workman  has  proved  to  be  the  former's 
fault ;  this  obligation  of  proof  has  made  the  workman's  right 
practically  invalid.  But  present  public  opinion  now  holds  that 
the  position  should  be  reversed,  and  that  the  employer  should 
always  be  held  liable  unless  the  accident  is  proved  to  have  arisen 


DISTRIBUTION.  515 

from  the  carelessness  or  recklessness  of  the  workman.  It  will  be 
seen  that  the  German  laws,  presently  to  be  spoken  of,  go  so  far 
as  always  to  put  the  risk  upon  the  master,  who  is  regarded  to  be 
as  much  liable  for  any  deterioration  of  his  staff  as  he  is  for  deteri- 
oration of  his  plant,  both  of  these  entering  into  the  general  ex- 
penses of  manufacture.  This  is  called  the  theory  of  "  professional 
risk."  The  object  of  such  a  proviso  is  to  put  a  stop  to  the  numer- 
ous law  cases  in  which  one  side  tries  to  throw  the  blame  on  the 
other  side.  Similarly,  with  a  view  to  avoid  all  controversy  as  to 
compensation  that  has  been  fixed,  once  for  all,  as  two-thirds  of  the 
wages.  Were  the  French  law  equally  severe  on  this  point,  em- 
ployers would  speedily  band  together  in  insurance  societies  for  the 
purpose  of  guarding  against  the  expenses  of  such  liabilities.  That 
might  be  the  best  solution. 

The  insufficiency  of,  or  disinclination  to,  private  action  as  to 
these  questions  has  made  men  ask  whether  the  State  is  not  bound 
to  interfere  to  guarantee  the  laboring  classes  against  these  risks, 
even  as  a  measure  of  good  administration ;  for  the  smallest  of 
these  risks  can  plunge  the  working  man  into  misery,  and  the  class 
composed  of  the  wretchedly  poor  is  at  one  and  the  same  time  a 
danger  and  an  expense  to  society. 

These  considerations  have  induced  the  German  government  to 
promulgate  a  body  of  laws  ^  which,  in  spite  of  the  conflicting  opin- 
ions as  to  their  virtue,  are  the  legislative  event  of  late  years.  We 
have  already  referred  to  a  portion  of  the  scheme.  The  whole  is 
a  gigantic  system  of  insurance  against  sickness,  accidents,  and  old 
age,  which  is  to  procure  the  compulsory  entrance  of  all  masters 
and  men,  both  in  manufacture  and  in  agriculture,  into  huge  indus- 
trial and  district  corporations.  The  expenses  of  insurance  against 
accidents  are  to  be  borne  entirely  by  employers  ;  insurance  against 
illness  falls  one-third  to  the  masters  and  two-thirds  to  the  men ; 

^  The  Act  of  1883  established  compulsory  insurance  against  sickness,  of 
1884  against  accident,  and  of  1889  compulsory  provision  for  old  age.  See  e.g. 
Professor  Taussig's  graphic  sketch  of  all  three  in  the  Forum  for  October, 
1889.— J.  B. 


5l6  PRINCIPLES    OF    POLITICAL    ECONOMY. 

insurance  against  old  age  and  infirmities  incapacitating  from  work 
is  to  be  divided  equally  between  employer  and  employed.  When- 
ever the  expenses  are  very  large,  the  State  comes  to  the  aid  of 
both  parties,  and  promises  to  grant  ^2  \os.  (50  marks)  a  year  to 
each  superannuated  person.  It  is  still  too  early  to  judge  of  the 
value  and  useful  results  of  this  huge  mechanism.  In  spite  of  its 
extraordinary  complication,  it  will  remain  as  a  legislative  monu- 
ment of  our  era,  and  as  the  boldest  experiment  of  State  sociahsm 
which  has  yet  been  tried. 

In  France  there  has  been  since  1850  a  State-estabhshed  Na- 
tional Superannuation  and  Insurance  Office,  which  gives  workmen 
rather  better  terms  than  are  granted  by  ordinary  insurance  com- 
panies ;  but  it  has  not  been  much  used.  Latterly  various  bills 
have  been  proposed,  to  form  superannuation  funds  for  the  aged, 
after  the  German  system. 

But  association  and  insurance  are  not  capable  of  exorcising  that 
lack  of  work  which  present-day  economic  evolution  brings  upon 
us  again  and  again  with  almost  fatal  periodicity.  Unlike  the  other 
risks  we  have  enumerated,  this  danger  does  not  attack  mere  indi- 
viduals ;  it  assails  in  large  bodies  all  the  men  in  one  factory,  all 
the  workers  in  one  trade,  sometimes,  too,  all  the  industries  in  a 
country  !  No  doubt  the  workingman  can  subsist  for  a  brief  space 
by  eating  up  his  small  savings,  if  he  has  made  any,  or  by  pledging 
at  the  Moiit-de-Piete  the  few  movable  goods  he  may  possess ;  but 
these  are  scanty  resources.  We  may  note  that  the  French  Monts- 
de-Piete  are  in  a  way  the  equivalent  of  the  pawn-shop,  as  they  lend 
money  on  pledged  articles.  Though  they  are  philanthropic  insti- 
tutions which  are  not  worked  for  a  profit,  they  are  obliged  by  the 
very  onerous  nature  of  their  business  to  lend  at  a  very  high  rate 
of  interest. 

Now,  can  the  State  do  aught  to  guarantee  the  workman  against 
the  risk  of  losing  all  employment  ?  This  was  once  believed  to  be 
possible,  and  the  government  was  urged  to  aid  all  men  out  of  work 
by  guaranteeing  them  the  Right  to  Labor.  This  claim  made  a 
great  stir  during  the  French  Revolution  of  1848  ;  and  to  meet  this 


DISTRIBUTION.  51/ 

demand  were  formed  those  "National  Workshops"  in  the  Champ- 
de-Mars  which  provoked  the  sanguinary  insurrection  of  the  Days 
of  June.  This  right  is  now  somewhat  out  of  fashion.  It  is  certain 
that  the  State  has  not  the  power  to  assure  to  each  man  a  special 
kind  of  work,  —  the  work  which  suits  him  best,  and  least  of  all  a 
productive  form  of  labor,  —  unless,  indeed,  it  turns  itself  into  the 
universal  employer  in  all  industries,  —  in  other  words,  steps  boldly 
upon  the  path  of  collectivism.  Indeed,  men  have  scarcely  yet 
come  to  recognize  that  the  right  to  labor  is  anything  more  than  a 
form  of  public  relief.     We  shall  return  to  this  subject. 

Section  3.  The  State  can  attempt  to  improve  the  condition  of 
the  wage-earning  classes,  not  by  interfering  with  wages,  but  by 
reducing  the  duration  of  labor.  This  question  has  of  late  years 
given  rise  to  quite  a  separate  economic  literature  of  its  own. 

The  Liberal  school  only  admits  limitation  of  labor  as  far  as 
regards  children,  for  they  are  minors  and  are  unable  to  assert  and 
defend  their  own  rights  themselves.  There  is  no  disagreement 
on  this  point ;  and  the  laws  of  all  countries  in  Europe,  save  for 
a  few  scandalous  exceptions,  prohibit  children  from  working  in 
factories  till  they  have  reached  a  certain  age  ;  but  the  limit  of  age 
varies.  In  France,  at  present,  it  is  twelve  years,  which  is  too 
low ;  but  a  bill,  which  has  not  yet  passed,  will  probably  raise  it  to 
thirteen. 

The  application  of  this  restriction  to  men,  and  even  to  women, 
the  Liberal  school  refuses  to  grant.  In  its  opinion,  men  and 
women  alike  are  the  best  judges  of  the  use  they  ought  to  make  of 
their  time,  and  it  would  be  a  great  disservice  to  prevent  them 
working  when  they  please,  since  their  labor  constitutes  their  liveli- 
hood. Society,  too,  would  be  injured ;  for  to  limit  labor  would 
diminish  the  production  of  wealth. 

All  the  other  schools,  not  only  the  socialists,  properly  so-called, 
but  also  the  socialists  of  the  Chair  and  the  Catholic  school,  hold 
that  the  legislator  has  the  right,  and  ought,  to  interfere,  even  in 
the  case  of  men.  The  line  of  argument  is  that  freedom  of  contract 
as  applied  to  wages  is  nominal  and  not  real.     A  workman  labors 


5l8  PRINCIPLES    OF    POLITICAL    ECONOMY. 

twelve  hours  a  day,  not  because  he  wants  to  do  so,  but  because  he 
cannot  help  himself.  Further,  a  limitation  of  the  hours  of  labor 
would  not  diminish  the  production  of  wealth,  and,  even  if  generally 
adopted,  would  not  reduce  wages.  Nay,  if  it  did  lower  wages,  it 
would  be  better  for  workingmen  to  have  smaller  incomes  and  less 
deadening  work. 

This  assertion  that  wages  would  not  be  reduced  may  sound 
paradoxical,  but  it  is  the  logical  consequence  of  all  the  great  theories 
we  have  examined.  Socialists  who  hold  that  the  rate  of  wages  is 
always  determined  by  the  cost  of  maintenance  of  the  laboring-man 
and  his  family,  have  no  difficulty  in  showing  that  the  number  of 
hours  he  works  cannot  influence  the  rate  of  wages  in  the  least.  Nor 
can  those  who  base  wages  on  the  law  of  supply  and  demand 
think  that  the  limitation  of  the  hours  of  labor  can  lower  the  rate 
of  wages,  for  its  effect  would  be  to  make  manual  labor  scarce. 
With  the  length  of  the  working-day  reduced  by  a  tenth,  eleven 
men  would  have  to  be  employed  in  the  place  of  ten.  Again, 
those  who  beheve  that  the  productivity  of  labor  is  the  sole 
regulator  of  the  rate  of  wages,  can  still  think  that  to  reduce  the 
hours  of  labor  will  not  reduce  wages,  for  experience  shows  that  a 
man  works  far  better  when  he  is  not  overworked,  and  that  the 
greater  intensity  of  the  labor  amply  compensates  for  the  shorter 
time  spent  over  it.  This  is  shown  in  England  and  the  United 
States,  where  the  working-day  is  the  shortest  and  labor  is  the 
most  productive. 

However,  it  must  be  admitted  that  the  economic  solidarity  of 
the  present  day,  or  rather  the  keen  competition  between  nation 
and  nation,  would  make  it  difficult  for  any  one  country  to  limit 
the  length  of  its  working-day  without  falling  into  a  position  of 
dangerous  inferiority.  For  this  reason  a  general  agreement  be- 
tween all  civilized  countries  has  appeared  to  be  desirable,  but  the 
problem  would  thereby  become  international  and  none  the  more 
easy  to  solve.  In  April,  1890,  an  international  conference  on  the 
matter  was  held  at  Berlin,  and  in  this  all  the  European  countries 
took  part.     A  number  of  resolutions  were  formulated ;  but  until 


DISTRIBUTION.  5I9 

furtlier  steps  are  taken  these  will  remain  in  the  state  of  abstract 
resolutions. 

For  the  restriction  of  the  hours  of  work  for  women,  the  argu- 
ments are  very  strong  indeed.  Female  labor  in  the  workshop 
practically  destroys  the  home  ;  it  causes  mothers  to  neglect  their 
children,  and  often  drives  the  girls  and  younger  women  upon  the 
streets.  This  compulsory  neglect  of  children,  if  of  early  years, 
necessarily  involves  artificial  rearing,  and,  with  that,  an  appalling 
mortality  of  infants,  —  more  than  sixty  per  cent  of  those  in  their 
first  year.  The  welfare  of  the  community  is  therefore  at  stake. 
To  remedy  this  frightful  blot,  creches  (or  common  nurseries)  have 
been  established  ;  these  are  private  institutions  which  take  in  chil- 
dren whose  mothers  have  to  leave  them,  and  tend  them  on  hygienic 
principles. 

Several  countries  have  begun  to  restrict  the  hours  of  labor.  In 
Switzerland  and  in  Austria  the  working-day  for  men  has  of  late 
been  fixed  at  eleven  hours.  In  France  there  is  an  unrepealed  law 
dating  from  1848  which  assigns  twelve  hours  as  the  limit;  but 
this  measure  is  a  dead  letter.  Though  women  are  not  prohibited 
to  labor  and  the  hours  are  not  limited,  still  the  laws  usually  forbid 
them  to  work  at  night-time,  in  mines,  or  for  a  reasonable  period 
before  and  after  childbirth.  Till  lately,  the  restriction  as  to  work 
in  mines  was  the  only  one  which  obtained  in  France ;  but  a  recent 
measure  aims  at  further  restrictions. 

VII.    Co-operation. 

The  third  mode  of  improving  the  condition  of  the  wages-earning 
classes  is  association,  —  either  the  partnership  between  the  employer 
and  his  workmen  which  is  called  profit-sharing,  or  partnership  of 
workmen  among  themselves  in  the  form  of  producers'  co-operative 
societies. 

Up  to  the  present  moment  this  has  been  the  least  fruitful  in 
results  of  the  three  methods  we  have  indicated  above  ;  but  none 
the  less  it  is  the  one  in  which  we  ought  to  put  most  trust.     It 


520  TRINCIPLES    OF    POLITICAL    ECONOMY. 

is  as  superior  to  tlie  method  of  strikes  as  peace  is  to  war ;  it  is 
better  than  State  interference  in  the  same  way  as  hberty  is  better 
than  coercion. 

Section  i.    Profit-Sharing. 

This,  as  we  have  said,  tends  to  modify  the  wages-system  by 
putting  in  its  stead  association  between  employer  and  employed. 
Association  we  have  already  recognized  to  be,  theoretically,  the 
most  perfect  form  of  productive  enterprise,  and  the  removal  of 
the  practical  difficulties  which  we  have  also  granted  is  the  aim 
of  profit-sharing. 

This  method  is  thoroughly  French  in  origin.  It  was  first  prac- 
tised in  1842  by  a  house-painter  named  Leclaire.  The  measure 
of  success  he  obtained  has  never  been  equalled  since  then ;  but  it 
can  be  explained  by  the  special  conditions  of  the  founder's  calling. 
The  plan  is  now  employed  in  at  least  250  business  houses ;  and 
nearly  all  these  experiments  have  turned  to  the  advantage  of  the 
masters  as  well  as  of  the  men.^ 

However,  in  most  of  these  cases  the  profit-sharing  has  not  been 
an  actual  partnership  ;  the  differences  lie  in  the  following  features  : 
The  workmen  are  always  liable  to  be  discharged  by  the  employer  ; 
in  no  wise  do  they  take  part  in  the  management ;  they  do  not  bear 
any  of  the  losses  ;  finally,  they  are  paid  in  ordinary  wages,  and  the 
share  they  receive  from  the  profits  is  treated  merely  as  a  supple- 
ment, a  "  condiment  "  (or  relish  in  the  food),  as  M.  Leroy-Beaulieu 
calls  it ;  indeed,  in  some  cases  it  is  only  a  gratuity  or  present, 
which  the  employer  fixes  as  he  wills.  Further,  the  amounts  which 
the  workmen  receive  from  this  system  may  be  apportioned  in 
different  ways.     They  may  be  calculated  according  to  the  profits 

^  A  British  Government  return,  drawn  up  by  Mr.  J.  L.  Whittle  of  the 
Patent  Office  and  pubHshed  in  March,  1891,  gives  figures  and  facts  about  the 
leading  cases  of  profit-sharing  in  Europe  and  the  United  States.  The  details 
given  of  the  system  of  Laroche  Jou1)crt's  Paper  Manufactory  are  especially 
valuable.  (Report  to  Board  of  Trade  on  Profit-Sharing,  1S91,  C.  6267.)  — • 
J.B. 


DISTRIBUTION.  521 

realized,  or  to  the  quantity  of  the  goods  produced,  or  even  to  the 
savings  effected  in  the  use  of  the  raw  material.  Thus,  some  rail- 
way companies  give  bonuses  to  their  engine-drivers  in  proportion 
to  the  amount  of  coal  they  have  succeeded  in  saving. 

It  is  probable  that  as  this  system  develops,  it  will  come  rnore 
and  more  to  coincide  with  a  real  partnership.  Such  as  it  is,  it 
has  already  rendered  very  great  services.  It  interests  the  work- 
man in  the  success  of  the  business,  and  therefore  incites  him  to 
exert  all  the  energy  of  which  he  is  capable.  It  unites  the  work- 
man's interests  with  the  employer's,  and  thus  prevents  disputes 
and  strikes.  It  keeps  the  workman  in  the  same  factory  year  after 
year,  and  tends  to  guarantee  permanent  employment.  It  en- 
courages thrift  by  splitting  up  the  workman's  income  into  two 
portions,  —  the  weekly  wages,  which  are  devoted  to  current  ex- 
penses ;  and  the  dividend  distributed  at  the  end  of  the  year,  which 
makes  a  surplus  that  is  quite  ready  for  investment.  Usually, 
indeed,  the  employer  makes  sure  of  this  saving  by  withholding 
part  of  the  dividend  at  the  year's  end,  and  carrying  it  forward  to 
the  workman's  account  in  a  special  fund,  —  say  a  superannuation 
fund. 

The  attitude  which  the  classical  school  holds  with  regard  to 
profit-sharing  is  one  of  ironical  interest  rather  than  of  pronounced 
hostiUty.  The  following  are  the  principal  criticisms  it  passes  : 
Workmen  have  no  right  to  profits,  for  in  every  business  it  is  the 
employer,  and  not  his  men,  who  really  makes  them ;  they  are  the 
result,  not  of  the  actual  process  of  manufacture,  but  of  the  sale  of 
the  products,  and  with  this  workmen  have  nothing  whatever  to  do. 
—  We  need  only  rejoin  that  capitalists  have  even  less  to  do  with 
the  creation  of  profits  than  workmen  are  supposed  to  have,  and 
yet  their  participation  in  the  profits  of  any  business  is  regarded 
as  perfectly  natural,  if  only  they  are  shareholders.  —  The  second 
criticism  is,  that  it  would  be  unjust  for  workmen  to  share  in  the 
profits,  since  their  position  ipso  facto  prevents  them  from  bear- 
ing the  losses.  Our  answer  is,  that  this  difficulty  might  be  turned 
by  the  establishment  of  some  insurance  fund  against  risks  which 


522  PRINCIPLES    OF    POLITICAL    ECONOMY. 

should  be  partly  supported  by  a  deduction  made  from  the  men's 
wages.  Further,  under  the  wages-system  now  in  vogue  there  is 
injustice  in  a  far  different  way.  Though  the  workman  has  no  share 
whatever  in  the  profits,  he  does  have  to  bear  the  losses ;  for,  if  the 
business  does  badly,  his  wages  are  reduced  ;  and  if  it  stops  alto- 
gether and  the  works  are  closed,  he  is  thrown  out  of  employment 
and  is  deprived  of  all  his  wages. 

Section  2.    Producers'  Co-operative  Societies. 

Association  for  production  is  a  far  more  radical  measure  than 
profit-sharing;  the  latter  retains  the  employer,  the  former  does 
away  with  the  wages-system.  Workmen,  instead  of  laboring  on  a 
master's  behalf,  band  together  to  produce  on  their  own  account 
and  at  their  own  risk  and  peril ;  as  they  are,  moreover,  the 
owners  of  their  instruments  of  production,  they  naturally  keep  for 
themselves  the  whole  of  the  produce  of  their  labor.  This  is  the 
position  of  the  autonomous  producer  whom  we  have  already  dis- 
cussed ;  but  here,  instead  of  there  being  one  solitary  laborer,  we 
have  a  group  of  laborers  forming  a  unit,  a  transformation  which 
has  been  rendered  necessary  by  the  requirements  of  large  pro- 
duction. 

France  is  regarded  as  the  classic  land  of  these  associations,  and 
seems,  indeed,  to  have  taken  the  initiative  in  the  matter,  for  the 
first  French  society  for  jDroduction  dates  as  far  back  as  1833. 
Moreover,  at  the  close  of  the  Revolution  of  1848,  this  movement 
assumed  great  vigor,  and  more  than  two  hundred  workmen's  asso- 
ciations for  production  were  started  in  France,  many  of  them  being 
in  Paris ;  but  few  of  these  have  survived,  nor  has  a  more  happy 
fate  attended  their  successors.  At  the  present  time  the  number 
is  about  sixty,  and  in  Germany  and  in  England  the  figures  are 
approximately  the  same.  These  producers'  co-operative  societies 
have  several  obstacles  to  encounter,  and  these  only  too  fully  ex- 
plain their  want  of  success. 

The  first  and  greatest  lies  in  the  working  class's  lack  of  economic 


DISTRIBUTION.  523 

C(fiicafion.  Thus  laboring  men  are  rarely  able  to  find  among 
themselves  men  who  are  of  sufficient  ability  to  manage  an  indus- 
trial business.  Even  if  the  fitting  persons  are  found,  they  cannot 
be  chosen  to  act  as  managers,  for  their  very  superiority  too  often 
serves  to  exclude  them.  Further,  even  supposing  that  the  direc- 
tion of  the  business  is  confided  to  them,  it  is  difficult  to  guarantee 
them  a  share  in  the  produce  of  the  undertaking  that  is  propor- 
tionate to  the  services  they  render,  for  the  superiority  of  intellec- 
tual work  over  manual  labor  is  still  insufficiently  understood.  We 
must  hope  that  this  economic  education  will  be  gradually  acquired 
by  the  practice  of  association  in  its  various  forms,  especially  in 
producers'  societies,  but  also  in  consumers'  associations. 

The  second  drawback  is  the  want  of  capital.  We  are  aware 
that,  even  if  the  capitalist  could  be  blotted  out  of  the  process  of 
production,  capital  could  never  be  made  to  disappear  likewise ; 
for  the  system  of  large  production  now  in  vogue  demands  ever 
increasing  supplies  of  capital.  Now,  how  can  plain  workmen 
obtain  these  large  sums?  From  the  pence  that  they  might  put 
by  from  their  daily  earnings  ?  That  is  possible  ;  it  has  been  done 
in  a  few  businesses  occupied  in  small  industry,  but  even  then  at 
the  price  of  heroic  sacrifices.  We  cannot  reckon  on  any  general 
accumulation  of  such  tiny  sums.  Shall  the  workmen  obtain  the 
desired  capital  in  the  shape  of  loans  from  the  government?  The 
experiment  was  made  in  1848,  but  the  ^120,000  sterling  that 
were  then  distributed  brought  little  luck  to  the  societies  that 
received  them.  Nothing  is  easier  to  waste  than  given  money, 
especially  when  the  State  is  the  donor.  Yet  the  socialists  appear 
to  favor  this  plan.  Lassalle  used  to  call  upon  the  government 
to  become  sleeping  partners  in  producers'  co-operative  societies 
and  advance  some  millions  sterling  to  them ;  thus  they  would  be 
powerfully  organized  and  would  be  able  to  sustain  a  victorious 
struggle  with  businesses  carried  on  by  capitalist  employers. 

However,  this  difficulty  is  not  insurmountable.  Workmen's  asso- 
ciations, when  once  they  have  been  substantially  organized  and 
have  won  their  spurs,  might  easily  be  able  to  borrow  all  the  capital 


524  PRINCIPLES    OF    POLITICAL    ECONOMY. 

they  might  require.  Have  not  the  German  co-operative  credit 
societies  been  able  to  obtain  their  ^20,000,000  sterhng?  Besides, 
the  capital  might  be  procured  in  a  direct  way  by  the  prior  con- 
stitution of  consumers'  co-operative  societies ;  the  profits  of  the 
English  societies  of  this  kind  amount  to  a  score  or  so  of  millions 
sterling. 

The  third  danger  is  that  they  tend  to  reconstruct  the  very  insti- 
tutions it  was  their  object  to  do  away  with,  namely,  the  system 
of  employer  and  wages-earner.  So  great  is  the  difficulty  of  modi- 
fying any  social  structure  !  For  whenever  these  associations  have 
proved  successful  they  have  closed  their  ranks,  refused  new 
members,  and  engaged  hired  workmen,  so  that  they  have  become 
nothing  more  than  companies  carried  on  by  small  employers.' 
We  cannot  gainsay  the  force  of  this  accusation  which  socialists 
bring  against  co-operation.  Still,  we  should  attribute  to  work- 
ingmen  the  possession  of  a  disinterestedness  of  a  rare  kind,  if 
we  were  to  expect  those  who  have  labored  from  the  beginning 
and  have  founded  a  prosperous  business  through  dint  of  persever- 
ance and  by  means  of  privation,  to  admit  on  a  footing  of  equality 
those  who  wish  to  enter  at  the  eleventh  hour  when  the  work  is 
done.  There  is  reason  to  hope  that  these  obstacles  may  be  at 
least  partly  smoothed  away  by  a  due  course  of  preparation  which 
can  be  effected  in  two  ways  :  — 

Firstly.  By  profit-sharing ;  if  the  master  agrees  to  abdicate 
his  place,  as  it  were,  by  organizing  the  participation  in  such  a 
manner  that  the  workmen  can  become  his  partners  during  his  life- 
time, and  his  successors  on  his  death.  To  cite  the  most  famous 
examples,  this  has  been  done  by  M.  Godin  in  the  case  of  the 
Familistere  of  Guise,  and  by  Madame  Boucicault  for  the  Bon 
Marchl- ; 

Secondly.    By  consumers'  co-operative  associations  ;  these,  when 

^  This  was  true,  for  example,  of  the  Rochdale  Pioneers.  Even  now  the 
productive  works  of  the  great  English  Co-operative  Wholesale  Society  (though 
not  those  of  the  Scottish)  are  carried  on  by  hired  labor  that  has  no  share  in 
either  profits  or  management.  — J.  13. 


DISTRIBUTION,  $2$ 

sufficiently  developed  and  interfederated,  can  start  producers'  co- 
operative societies,  which  they  might  supply,  at  one  and  the  same 
time,  with  capital,  with  managers,  and  with  a  body  of  customers,  — 
the  very  elements,  be  it  noted,  which  have  hitherto  been  wanting. 
In  England  consumers'  societies  have  already  adopted  these  tac- 
tics ;  they  have  founded  some  co-operative  industries  and  support 
others. 

Like  profit-sharing,  co-operative  association  is  not  regarded 
favorably  either  by  economists  of  the  Liberal  school,  who  think 
that  the  existing  social  order  is  satisfactory  and  need  not  be 
changed,  or  by  the  extreme  socialists,  who  hold  that  The  Revolu- 
tion is  inevitable,  and  that  it  is  therefore  useless  to  play  at  political 
economy.  Indeed,  socialism  generally  is  not  greatly  enamoured 
of  co-operation,  and  regards  it  at  the  best  as  a  transition  measure. 
Though  co-operative  production  aims  at  the  abolition  of  the 
wages-system,  it  retains  private  property  in  capital  as  its  basis, 
for  its  object  is  to  make  the  laborers  joint  proprietors  of  their 
instruments  of  production.  Now,  collectivism  has  in  view  the 
"  socializing  "  of  all  instruments  of  production  ;  that  is  to  say,  their 
withdrawal  from  all  private  appropriation,  even  from  the  laborers 
themselves.  Our  main  objection  to  the  socialistic  programme  is, 
that  instead  of  putting  an  end  to  the  wages-system,  it  is  uncon- 
sciously tending  to  make  it  universal.  For,  as  soon  as  society  is 
the  sole  owner  of  all  instruments  used  in  production,  it  will  be 
the  only  employer  or  master,  and  all  men  will  be  its  hired  and 
wage-earning  laborers.^ 

In  fine,  in  spite  of  all  adverse  criticism,  co-operation  is  the 
sheet-anchor  of  those  who  hold  that  there  is  a  social  question  to 
solve  and  a  social  revolution  to  avoid. 

1  But  see  our  author's  own  remarks  at  the  beginning  of  Book  IV,  Part  II, 
Chap.  Ill,  p.  489. —J.  B, 


CHAPTER   IV. 
THE    MAN    WHO    LIVES    ON    HIS    INCOME. 

I.    The  Right  to  be  Idle. 

In  every  society  there  is  a  certain  class  of  persons  who  do 
nothing,  but  who,  none  the  less,  enjoy  incomes  which,  usually 
speaking,  are  very  large  indeed.  Does  not  the  existence  of  this 
class  of  do-nothings  appear  to  be  in  flagrant  contradiction  to  our 
principle,  "  each  man  according  to  his  own  labor  "  ?  Seeing  that 
they  do  not  work,  what  right  have  they  to  live,  and,  what  is  more, 
to  live  well?  We  are  certainly  entitled  slightly  to  alter  a  line  in 
the  First  Eclogue,  and  to  ask  these  privileged  mortals,  who  is  the 
god  who  has  granted  them  this  ease  :  Deus  vobis  hcec  otia fecit? 

The  explanation  is  simple  enough.  These  persons  are  owners 
of  land,  or  of  a  house,  or  of  some  form  of  capital ;  now,  instead 
of  working  their  land  or  capital  for  a  profit,  on  their  account, 
or  instead  of  dwelling  in  their  house,  for  one  reason  or  another, — 
perhaps  merely  for  the  pleasure  of  doing  nothing,  —  they  let  or 
lend  their  property  to  other  people  in  return  for  a  sum,  which  is 
payable  annually,  under  the  name  of  interest,  land-rent,  or  house- 
rent.  On  this  payment  they  live ;  as  the  saying  goes,  they  live 
on  their  income. 

Must  they  be  debarred  from  so  doing?  If  so,  by  what  right? 
Of  course,  if  we  reject  the  principle  of  j^rivate  property,  the  right 
to  lend  and  the  possibility  of  living  on  one's  income  vanish  simul- 
taneously. But  we  have  already  accepted  the  principle ;  and  it 
is,  therefore,  difficult  to  see  how  we  can  refuse  the  producer  the 
right  to  dispose  of  his  article  as  he  pleases,  and  especially  the  right 
to  lend  it  or  to  let  it  in  return  for  a  fixed  payment. 
526 


DISTRIBUTION.  52/ 

As  we  are  aware,  the  collectivist  school  denies  this  right.  It 
certainly  allows  the  producer  to  do  what  he  will  with  the  portion 
of  wealth  which  he  has  legitimately  gained,  —  to  consume  it,  destroy 
it,  give  it  away  to  the  person  of  his  choice,  —  but  it  forbids  him  to 
lend  it,  just  as  it  prohibits  him  from  making  money  out  of  it  by 
means  of  workmen  whom  he  pays  in  wages  ;  for  in  either  case  he 
would  be  living  on  the  products  of  other  people's  labor. 

It  is  incontestable  that  the  man  of  independent  means  does  live 
on  other  people's  labor ;  but  he  cannot  be  said  to  live  at  other 
people's  expense,  if,  by  the  operation  of  lending  or  letting,  another 
man  realizes  a  gain  or  effects  a  saving  which  is  more  than  the 
interest  or  house-rent  which  he  has  to  pay.  Now,  it  is  probable 
that  this  is  the  case ;  for  otherwise,  why  should  the  borrower,  the 
tenant,  or  the  lodger,  strike  the  bargain  ? 

The  rejoinder  is,  that  this  argument  might  serve  if  the  wealth 
lent  by  the  do-nothing  was  really  the  product  of  his  personal  labor, 
and  if  he  could  be  said  to  live  on  the  results  of  his  past  labor. 
But  that  is  not  so.  The  landowner,  who  lives  on  his  farm-rents, 
has  not  made  the  land ;  the  landlord,  who  lives  on  his  house- 
rents,  has  not  built  the  house,  but  has  employed  workmen  to  build 
it ;  even  the  capitalist,  who  lives  on  his  income,  as  often  as  not 
has  not  gained  his  capital  himself;  he  has  received  it,  already 
made,  from  those  who  have  left  it  him  as  an  inheritance.  Our 
only  answer  can  be  to  refer  the  reader  to  our  previous  explanation, 
which  shows  the  extension  of  the  rights  of  property,  by  a  logical 
evolution,  from  the  products  of  personal  labor  both  to  land,  to 
possessions  acquired  by  inheritance,  and  to  the  produce  of  all  col- 
lective undertakings.  It  is  legitimate  to  dispute  the  extension  of 
the  rights  of  property  to  these  various  kinds  of  wealth ;  but  when 
once  the  former  have  been  granted,  it  would  be  out  of  the  ques- 
tion to  mutilate  them  by  depriving  them  of  one  of  their  essential 
attributes. 

Thus,  the  existence  of  an  "  idle  "  class  is  easily  explained  as 
far  as  regards  right.  Is  it  more  vulnerable  when  we  look  to  social 
utility  ?     Yes,  cries  every  socialist ;  and  John  Stuart  Mill  was  of 


528  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  same  opinion.  The  point  is  to  discover  whether  this  class 
serves  any  social  purpose. 

The  unoccupied  are  not  necessarily  the  drones  of  the  hive. 
Lack  of  occupation,  or  "idleness,"  may  be  fertile  in  result  and 
fulfil  a  real  social  function.  In  its  scientific  sense,  the  epithet 
"  idle  "  does  not  exactly  mean  people  who  do  nothing  ;  but  desig- 
nates those  persons  whose  position  in  life  frees  them  from  all 
anxiety  as  to  their  daily  bread,  and  who  can  therefore  turn  to  any 
occupation  save  productive  or  lucrative  labor.  In  the  opinion  of 
the  ancients,  it  was  indispensable  that  citizens  should  have  all  their 
time  free  for  the  purpose  of  joining  in  public  affairs.  Even  at  the 
present  day,  the  fitting  management  of  certain  social  interests, 
the  disentangling  of  the  subtle  threads  of  politics  and  of  diplo- 
macy, the  holding  of  the  reins  of  government,  the  swaying  of  the 
sceptre  of  taste  in  the  realm  of  arts  and  letters,  require  delicate 
hands  which  have  not  been  hardened  by  daily  toil,  and  minds 
which  are  not  heavily  burdened  with  anxious  thoughts  as  to  tasks 
that  have  to  be  completed  and  livings  that  have  to  be  gained. 
Such  high  functions  cannot  be  executed  in  odd  hours  snatched 
from  the  labors  of  the  workshop  or  the  counting-house. 

Under  such  conditions,  idleness,  or  leisure  from  work,  is  merely 
a  clear  instance  of  division  of  labor ;  and,  if  used  in  that  manner, 
should  by  no  means  be  proscribed,  but  should  rather  be  regarded 
as  the  supreme  recompense  that  can  crown  the  aspirations  of  those 
who  have  labored  enough  and  have  produced  enough.  For  long  to 
come  this  privilege  will  only  fall  to  the  lot  of  a  few  men,  because, 
as  we  have  often  had  to  observe,  our  modern  societies  are  too  poor 
to  grant  many  of  their  number  the  blissful  luxury  of  leisure.  But 
the  ranks  of  the  sharers  in  this  privilege  will,  we  may  fairly  hope, 
be  constantly  reinforced. 

Two  reservations  must  be  made  :  We  must  learn  whether  those 
of  us  who  exercise  these  high  social  functions  strive  their  hardest 
to  promote  social  welfare,  or  whether  they  endanger  the  public 
interests  by  making  no  other  use  of  their  leisure  than  the  in- 
vention of  some  new  mode  of  squandering  wealth.     We  must 


DISTRIBUTION.  529 

farther  ascertain  whether  their  share  of  the  general  distribution  of 
wealth  is  really  equitable.  In  France  this  portion  cannot  be  less 
than  _;j^ 1 60,000,000  or  ^200,000,000  sterling  (say  ;^i  20,000,000 
in  interest,  dividends,  or  fines  for  delayed  payments ;  ^40,000,000 
in  land-rent,  and  ^40,000,000  more  in  house-rent).  For  the  ser- 
vices rendered,  this  amount  is  certainly  a  large  one. 

We  will  now  study  in  turn  each  of  the  three  classes  which  com- 
pose the  group  of  those  who  live  on  their  incomes. 

II.    The  Rent  of  Land. 

Of  the  three  classes,  the  landowner  who  lives  on  his  rent  is 
certainly  the  most  open  to  attack. 

The  weak  point  in  his  position  is  easily  seen.  We  have  already 
granted  that  the  institution  of  landed  property  is  indispensable  for 
the  development  of  agricultural  production  to  the  highest  degree, 
and  for  obtaining  from  the  soil  the  greatest  possible  returns. 

We  have  thus  been  led  to  consider  landowners  as  invested  with 
a  real  social  function,  in  fact,  as  administrators  to  whom  society 
has  intrusted  the  cultivation  of  the  soil,  for  which  their  fixed  and 
final  remuneration  is  to  be  the  sum  total  of  all  that  they  may 
succeed  in  producing. 

So  much  we  grant;  but  the  landowner  scarcely  seems  to  be 
carrying  out  his  mission,  when  he  neglects  his  charge  of  cultivating 
the  soil  and  converts  his  land  into  an  instrument  of  profit  and  a 
means  of  living  without  working.  We  cannot  easily  admit  that 
land  has  been  distributed  amongst  a  few  men,  Uke  the  benefices  or 
glebe-farms  in  the  king's  gift,  merely  that  it  may  yield  them  a 
certain  income.  Thus  the  reasons  which  induced  us  to  agree  to 
the  rights  of  property  do  not  appear  equally  to  justify  land-rent. 

Further,  we  have  seen  that  the  inevitable  effect  of  the  laws  of 
landed  property  and  the  progressive  unearned  increment  of  the 
soil  is  to  continually  raise  the  amount  of  farm-rentals.  Thus  this 
class  of  "  idle  "  landlords  obtain  a  constant  rise  in  their  income 
without  having  to  bestir  themselves  in  the  least.     This  was  the 


530  PRINCIPLES    OF    POLITICAL    ECONOMY. 

origin  of  the  territorial  aristocracy  of  the  EngHsh  noblemen  and 
gentry. 

Accidental  and  temporary  causes  —  for  example,  the  present 
competition  of  American  land  —  may  arrest  this  tendency,  but  do 
not  alter  its  direction. 

Again,  agriculture  is  gravely  damaged  by  the  separation  of  the 
respective  functions  of  owner  and  cultivator,  which  results  from  the 
system  of  leases.  No  man  is  able  to  get  from  his  land  all  that 
he  possibly  can,  unless  he  learns  to  love  it  and  becomes  attached 
to  it.  When  land  is  merely  let  on  lease,  the  landlord  does  not 
experience  this  feeling,  for  he  does  not  live  on  this  part  of  his 
estate,  —  is  even,  perhaps,  altogether  ignorant  of  it ;  nor  does  the 
farmer  cherish  this  sentiment,  for  he  is  only  a  bird  of  passage  and 
feels  that  he  is  a  stranger.  Compare  with  this  Michelet's  descrip- 
tion of  the  peasant  proprietor  :  "  When  thirty  paces  away,  he  stops, 
turns  back,  and  casts  upon  his  land  a  last  look  which  is  at  once 
profound  and  sombre ;  but  for  the  keen-eyed  observer  that  look  is 
full  of  passion,  love,  and  devotion."  Land  will  never  be  looked  on 
with  such  an  eye  of  love,  either  by  the  farmer  who  occupies  it,  or 
by  the  owner  who  has  let  it  as  farm-land. 

On  the  other  hand,  M.  Leroy-Beaulieu  holds  that  a  division  of 
funcUons  is  formed  between  owner  and  farmer,  which  is  very  ad- 
vantageous to  a  satisfactory  organization  of  i)roduction.  In  the 
first  chapter  of  his  Essai  sur  la  repartition  dcs  richcsses  he  writes, 
"  The  landowner  represents  the  future  or  perpetual  interests  of  the 
estate,  whereas  the  farmer  only  stands  for  the  present  but  tem- 
porary interests."  That  sentence  is  very  well  put ;  but  even  if 
the  landowner  has  that  perfect  understanding  of  the  part  he  has 
to  play,  still  it  is  possible  that  present  and  future  interests  may 
clash,  and  it  would  be  better  that  the  same  person  should  preside 
over  both. 

The  ordinary  farm-tenure  does  not  show  nearly  so  well  as  the 
system  of  metayer  cultivation,  the  characteristics  of  a  real  partner- 
ship between  owner  and  cultivator  ;  especially  is  this  the  case  when 
under  the  method  of  metayage  the  landlord  provides  the  capital  as 


DISTRIBUTION.  53I 

well  as  the  land.  But  the  system  of  metayage  loses  all  its  merits 
when  the  owner  is  content  with  levying  a  yearly  share  in  kind,  and 
demands  half  the  crops.  In  Algeria  he  takes  as  his  share  four- 
fifths  of  the  produce. 

However,  in  spite  of  all  arguments  for  and  against,  the  power 
of  farming  out  one's  land  is  too  intimately  bound  up  with  the  right 
of  private  property  for  us  to  dream  of  abolishing  it.  When  once 
we  have  acknowledged  the  rights  of  property  to  be  legitimate,  it 
is  out  of  the  question  to  deny  the  legitimacy  of  letting  land  on 
lease. 

Nay,  the  interests  of  agriculture  might  be  endangered  by  a  sup- 
pression of  the  method ;  land,  owing  to  the  vagaries  of  circum- 
stance, may  happen  to  be  the  property  of  persons  who  are  totally 
unable  to  cultivate  it  themselves ;  the  reason  may  be  their  age, 
their  sex,  their  profession,  their  forced  absence,  or  the  extent  and 
multiplication  of  their  estates.  If  such  be  the  case,  what  better 
can  be  done  than  to  let  out  the  land  in  farms  ? 

To  minimize  the  disadvantages  of  the  system,  the  lawgiver 
should  turn  his  attention  to  two  points. 

Firstly,  He  should  strive  to  reduce  as  far  as  possible  the 
custom  of  granting  farm  leases,  and  should,  instead,  favor  the 
cultivation  of  the  land  by  the  owner  direct.  The  French  Civil 
Law  contributes  to  this  end  by  the  assistance  it  gives  to  small 
ownership.  In  France  40  per  cent  of  the  cultivable  land  is 
held  by  farm  leases,  or  under  the  metayer  system,  as  against 
60  per  cent  which  is  cultivated  by  the  landowners  themselves. 
That  is  a  very  fair  proportion ;  for  in  few  countries  (new  lands 
and  colonies  excepted)  does  land  held  by  lease  occupy  less  than 
half  the  whole  area. 

But  the  French  law  is  far  less  felicitous  when  it  multiphes 
the  conditions  of  inalienability  on  real  estate  belonging  to  minors, 
to  women,  and  to  corporations.  In  such  cases  the  holding  of 
farms  by  lease  is  rendered  obligatory,  for  the  law  hands  over  the 
care  of  landed  property  to  persons  who  are  incapable  of  working 
it  for  a  profit  themselves.     Thus  the  public  interests  are  harmed 


532  PRIN'CIPLES    OF    POLITICAL    ECONOMY. 

under  the  pretext  of  preserving  certain  private  interests.  The 
administrators  of  such  estates  (guardians,  husbands,  and  so  forth) 
are  forbidden  by  law  to  grant  really  long  leases ;  hence  the  evil  is 
aggravated. 

Secondly.  The  second  point  is  :  wherever  farm  leases  are  un- 
avoidable, the  law  should  require  that  the  interests  of  agriculture 
should  be  fostered,  either  by  long  leases,  or  by  giving  the  farmer 
the  right  to  the  surplus  value  which  accrues  from  his  labor. 

III.    House-Rent. 

From  a  theoretical  standpoint  the  right  to  house-rent  escapes 
the  objections  that  can  be  made  to  the  institution  of  farm-rent, 
for  it  cannot  be  denied  that  a  house  is  the  product  of  labor. 
There  may  be  controversy  as  to  the  site  on  which  the  house  is 
erected,  but  none  as  to  the  building  itself. 

From  a  practical  point  of  view,  also,  this  right  is  seen  to  rest 
on  a  firmer  basis.  There  is  no  harm  in  the  circumstance  that 
some  people  build  houses,  not  to  live  in  themselves,  but  to  let ; 
for  in  that  way  they  render  very  great  service  to  all  those  who 
require  a  dwelling.  It  might  be  more  convenient,  perhaps,  if  they 
did  this  gratuitously,  or  even  agreed  to  pay  the  tenants  care- 
takers' wages,  as  some  socialists  facetiously  ask ;  but,  as  in  that 
case  no  one  would  build  a  house  except  for  his  own  jjersonal  use, 
those  who  were  not  well  enough  off  to  own  a  house  would  be 
obliged  to  do  without  one  and  sleep  in  the  open  air. 

Yet  of  all  persons  who  live  on  their  income,  no  one  is  more 
cordially  detested  by  the  working  classes  than  the  "  landlord," 
and  no  tax  is  more  odious  and  burdensome  to  them  than  that 
which  is  expressed  by  the  term  which  contains  a  world  of  sorrow, 
the  "  rent." 

The  reason  is,  house  property,  even  more  than  property  in  land, 
is  becoming  a  monopoly ;  all  the  social,  economic,  and  political 
causes  which  urge  our  population  to  mass  together  in  the  great 
towns,  viz.  political  centralization,  production  on   a   large  scale, 


DISTRIBUTION.  533 

the  development  of  the  raihvay  system,  open-air  entertainments, 
theatres,  and  music-halls  —  all  these  tend  constantly  to  raise 
house-rent,  to  the  great  benefit  of  the  owners  of  house  property 
in  towns,  but  to  the  great  detriment  of  the  pubUc.  Forty  years 
ago  the  urban  population  of  France  was  rather  less  than  a  quarter 
of  the  population  of  the  whole  country  (24.42  per  cent,  to  be 
exact)  ;  at  the  present  day  it  is  rather  more  than  a  third  (35  per 
cent) .  Thus  the  population  of  the  towns  has  increased  by  nearly 
50  per  cent  in  the  last  forty  years  even  in  France,  in  which  country 
the  increase  of  town-population  has  been  least  large. 

This  is  one  of  the  most  grievous  of  all  the  consequences  of  the 
present  evolution  of  economics.  House-rent  was  unknown  to  the 
ancients ;  in  their  days  the  house  was  not  only  the  family  hearth, 
but  was  also  the  shrine  of  the  penates,  the  household  gods,  and 
each  man,  rich  or  poor,  had  his  own  dwelling.  In  our  time, 
however,  the  exigencies  of  modern  life  have  caused  men  to  rev^ert 
to  a  species  of  nomadic  existence,  and  prevent  them  from  taking 
a  firm  root  in  their  native  places.  Hence  the  majority  of  them 
have  to  live  in  lodgings. 

The  rich  may  survive  this  ;  their  sufferings  will  not  be  beyond 
bearing ;  but  it  is  quite  another  matter  for  the  poor.  The  increase 
of  house-rent,  which  has  compelled  the  working  classes  to  huddle 
together  in  wretched  quarters,  produces  most  deplorable  effects 
as  regards  both  health  and  morality.  It  is  one'  of  the  chief  causes 
of  most  of  the  vices  that  afflict  the  working  classes,  —  relaxation  of 
family  ties,  frequenting  of  public  houses,  and  precocious  de- 
bauchery,—  nay,  from  it  may  spring  some  of  the  scourges  of 
society ;  for  instance,  excessive  mortality  and  epidemical  diseases. 

The  only  efficacious  remedy  would  be  an  evolution  in  precisely 
the  opposite  direction,  by  which  the  growth  of  the  great  towns 
might  be  stopped,  and  the  country  districts  be  once  more  peopled 
by  the  inhabitants  who  have  deserted  them.  We  need  not  aban- 
don all  hope  of  such  a  change,  but  at  present  it  shows  no  signs  of 
being  realized.  Still,  great  good  may  be  done  by  conveyance  at 
cheap  rates,  as  by  the  omnibus,  the  tram-car,  and  railways  between 


534  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  heart  of  a  town  and  its  suburbs.  By  these  means  workmen  and 
business  employes  can  obtain  more  healthy  and  cheaper  dwelhiigs, 
which  may  be  at  some  distance  from  the  very  centre  of  the  city. 

Another  remedy,  which  is  the  most  practical  of  all,  is  to  build 
houses  which  are  to  be  let  to  workmen,  and  can  finally  become 
their  property  by  payment  of  a  small  sum  yearly.  Various  insti- 
tutions seek  to  reach  this  end,  but  full  details  cannot  be  given 
here.  One  of  the  most  interesting  of  all  is  the  association  of 
workmen  themselves  for  the  building  of  these  houses.  However 
ridiculous  we  may  think  the  saying  attributed  to  Joseph  Prud- 
homme,  that  "  people  who  cannot  pay  their  rent  ought  to  have  a 
house  to  themselves,"  the  only  solution  of  the  problem  will  be 
found  in  giving  the  workman  a  domestic  hearth  and  a  real  home. 

These  building  societies^  are  very  numerous  in  England  and 
the  United  States  ;  and  in  Philadelphia  they  have  been  so  success- 
ful that  almost  every  workman  has  his  own  house,  and  the  city 
has  received  the  proud  name  of  the  "  City  of  Homes." 

Moreover,  in  England,  and  also  in  France,  there  are  many 
philanthropic  undertakings  which  have  been  started  for  the  pur- 
pose of  building  workmen's  dwellings.  The  usual  practice  is  to 
be  satisfied  with  a  return  of  four  per  cent  on  the  capital,  or 
to  devote  the  whole  of  the  rents  received  to  the  building  of  new 
houses.  A  proposal  has  been  made  to  employ  for  this  purpose 
the 'funds  of  savings  banks,  which  in  France  are  turned  to  no 
really  beneficial  use,  and  the  experiment  has  been  made  lately  at 
Marseilles.  An  investment  of  this  kind  would  certainly  be  very 
safe  to  make,  and  would  be  of  much  utility. 

The  socialists  demand  that  these  workmen's  dwellings  should 
be  erected  by  the  State  or  by  municipal  bodies.  In  the  opinion 
of  the  coUectivists,  the  State  or  the  district  authorities  should 
expropriate  (with  or  without  compensation)  all  owners  of  house 
property,  and  should  then  let  the  houses,  either  at  a  rent  equal 
to  the  cost  of  construction,  or  gj-aiis.  This  is  land  nationalization 
applied  to  house  property  in  towns. 

^  M.  Raffalovich  gives  an  account  of  these  Building  Societies  in  his  book 
Le  Logement  de  V  Ouvrier  (Paris,  1887).  —  J.  B. 


DISTRIBUTION.  535 

To  such  a  proposal  our  answer  must  be  the  following :  In  the 
first  place,  if  the  State  exacts  no  house-rent,  the  earliest  result  will 
be  public  ruin ;  and,  further,  the  overgrowth  of  our  great  towns 
will  continue  to  increase  in  even  more  lamentable  proportions. 
It  is  clear  that,  if  in  Paris  every  one  could  live  rent  free,  few  persons 
would  deny  themselves  that  pleasure.  Secondly,  if  the  State  does 
compel  its  tenants  to  pay  their  rent,  and  punctually  too,  it  might 
speedily  become  as  unpopular  as  any  landlord  under  the  existing 
system,  and  might  have  even  greater  trouble  in  obtaining  payment. 

IV.     Interest. 

The  legitimacy  of  land-rent  and  house-rent  was  never  attacked 
until  men  had  begun  to  dispute  the  rightfulness  of  landed  prop- 
erty and  house  property.  But  the  legitimacy  of  interest  was  keenly 
assailed  long  centuries  before  any  one  ever  dreamt  of  denying 
public  property  in  capital,  and  ages  before  socialists  began  to 
exist.  Its  opponents  have  not  merely  been  a  few  troubled 
spirits,  but  have  comprised  the  most  illustrious  representatives  of 
human  knowledge,  —  ancient  philosophy,  mth  Aristotle  ;  the  Cath- 
olic Church,  with  the  Fathers  ;  the  Reformed  faith,  with  Luther ; 
Civil  Law,  with  Pothier,  —  the  list  might  never  end  if  we  were  to 
enumerate  all  those  who  have  fought  against  this  form  of  income, 
and  have  branded  it  with  the  name  of  usury.  For  centuries  pro- 
hibited in  greater  or  less  degree  by  civil  and  by  canon  law,  loan 
for  interest  still  bears  the  brand  of  this  old-time  reprobation  in  its 
limitation  to  five  per  cent  by  the  French  law  of  1807.  But  no 
one  has  ever  thought  of  fixing  a  tariff  for  landlord  or  house-rent. 
This  law  of  1807  had  fixed  the  rate  of  interest  at  five  per  cent  in 
civil  matters,  and  six  per  cent  in  commercial  matters.  The  latter 
restriction,  which  was  practically  a  dead  letter,  was  finally  abolished 
in  1885.  The  limitation  still  subsists  for  loans  made  by  other  than 
business  men,  and  it  has  long  been  debated  whether  this  survival, 
too,  ought  not  to  be  abolished,  and  perfect  freedom  as  to  the  rate 
of  interest  thus  inaugurated.  For  more  than  a  century  the  Liberal 
school  has  upheld  this  view,  with  the  famous  treatises  of  Bentham 


53^  PRINCIPLES    OF    POLITICAL    ECONOMY. 

and  Turgot  among  their  earliest  manifestoes.  This  final  abolition 
of  all  restrictions  would  certainly  be  the  logical  solution ;  but  in 
some  countries  usury  is  still  a  public  scourge,  especially  in  rural 
districts,  and  its  branding  by  law  is  by  no  means  disadvantageous  ; 
for,  whatever  may  be  said  to  the  contrary,  laws  do  help  to  form 
morals. 

There  must  have  been  some  reason  for  this  general  disapproba- 
tion of  usury,  nor  is  it  difficult  to  find. 

With  farm-leases  the  income  may  be  seen,  so  to  speak,  to  pro- 
ceed from  the  earth  itself  in  the  shape  of  crops,  and  it  is  thus 
perceived  that  the  rent  paid  to  the  landlord  is  not  abstracted  from 
the  farmer's  pocket.  The  latter  only  returns  the  produce  of  the 
instruments  of  production  that  have  been  entrusted  to  him ;  and 
as  he  does  not  give  back  more  than  a  portion,  he  must  make  some 
profit  after  all. 

With  loans,  however,  the  returns  do  not  visibly  proceed,  as 
interest,  from  the  money-bag  that  has  been  lent ;  for  as  Aristotle 
said,  "  One  coin  has  never  given  birth  to  another  coin."  Thus 
the  borrower's  pocket  was  regarded  as  the  only  source  from  which 
interest  could  spring.  It  was  in  accordance  with  this  view  that, 
in  his  comparison  of  the  landlord  and  the  capitalist,  Saint  John 
Chrysostom  waxed  wroth  and  asserted  "  that  the  lender  practised 
a  damnable  form  of  agriculture,  reaping  where  he  had  not  sown." 

It  may  be  rejoined,  no  more  does  a  house  produce  anything,  and 
the  tenant  has  to  pay  the  rent  out  of  his  own  purse.  Granted ; 
but,  though  it  is  unproductive,  a  house  is  not  consumed,  and 
when  the  lease  falls  in,  the  tenant  need  only  give  up  the  house  as 
it  is,  and  is  then  free  of  further  liability ;  whereas  it  is  believed 
that  capital  is  not  only  unproductive,  but  must  necessarily  be  con- 
sumed. Thus,  when  the  date  of  payment  comes,  the  unfortunate 
borrower  will  have  to  draw  upon  his  own  property,  not  only  for 
interest,  but  for  the  principal  to  boot. 

We  must  confess  that  this  opinion  was  a  sound  one,  both  dur- 
ing anticjuity  and  in  the  Middle  Ages.  For  long  centuries  loans 
were  almost  exclusively  loans  for  purposes  of  consumption.     The 


DISTRIBUTION.  537 

Roman  plebeian  who  borrowed  from  the  patrician  to  buy  bread, 
the  knight  of  feudal  times  who  borrowed  from  the  Jew  to  pur- 
chase armor,  both  devoted  the  money  they  received  to  consump- 
tion which  was  personal,  and  therefore  unproductive. 

Under  such  conditions  lending  could  not  but  be  an  instrument 
of  ruin,  and  hence  the  justification  of  so  ancient  and  wide-spread 
a  prejudice.  But  at  the  present  day  the  circumstances  are  radi- 
cally altered.  In  old  times  the  rich  lent  to  the  poor ;  it  is  now 
the  poor  who  lend  to  the  rich.  Thus  the  Suez  Canal  was  made 
by  the  loans  which  the  Company  received  from  people  of  small 
means.  Formerly  men  borrowed  so  that  they  might  live ;  nowa- 
days they  borrow  to  make  their  fortunes.  In  past  time  it  was 
considered  necessary  to  protect  borrowers  against  the  rapacity  of 
lenders ;  in  our  days  it  might  be  more  expedient  to  set  about 
defending  lenders  against  the  sharp  practices  of  borrowers.  In 
fact,  credit  has  now  assumed  its  real  character,  and  the  only  one 
it  ought  to  possess  in  economic  organization ;  it  has  become  a 
mode  of  production. 

We  do  not  mean  to  say  that  the  deplorable  and  ruinous  forms 
manifested  by  credit  in  older  days  have  yet  entirely  disappeared. 
They  are  still  kept  alive  by  the  young  men  with  "  expectations  " 
who  sign  promissory  notes,  by  the  badly  off  who  buy  on  credit  at 
retail  shops,  and  most  of  all  by  the  governments  that  issue  loans 
so  that  their  cannon  may  be  fed ;  but  these  are  the  exceptions. 
The  largest  part  of  the  huge  sums  that  daily  pass  from  hand  to 
hand  through  the  instrumentality  of  credit  is  excellently  employed 
in  productive  labor. 

Hence  the  old  prejudice  against  the  legitimacy  of  interest  has 
grown  to  be  out  of  date.  Capital  which  is  borrowed  serves  to 
produce,  just  as  well  as  land  which  is  leased  as  farms ;  and  the 
interest  paid  is  only  a  share  taken  out  of  the  profits  that  have 
been  made,  and  is  not  a  toll  levied  on  the  personal  labor  of  the 
borrower.  Further,  we  cannot  call  capital,  like  land,  a  sort  of 
deposit  which  society  has  entrusted  to  the  owner  for  him  to  turn 
to  profitable  use  by  means  of  his  labor.     Capital  has  not  beea 


538  PRINCIPLES    OF    POLITICAL   ECONOMY. 

thus  entrusted  to  the  capitalist  by  society ;  it  is  the  creation  of 
the  capitaHst  himself. 

When  once  we  thoroughly  understand  the  part  that  capital  plays 
in  production,  the  question  as  to  the  legitimacy  of  interest  is  virtu- 
ally settled,  and  it  would  be  idle  to  discuss  all  the  arguments  for 
or  against  loan  for  interest  which  lawyers  and  theologians  have 
accumulated  in  a  long  course  of  learned  casuistry.  Even  the 
socialists  have  ceased  to  speak  of  them.  But  with  them  the  con- 
troversy has  been  transferred  to  another  quarter.  They  do  not 
deny  that  interest  is  the  necessary,  and  therefore  the  legitimate, 
consequence  of  private  property  in  capital ;  but  they  strike  nearer 
home,  and  attach  this  very  private  property  in  capital.  We  can 
only  refer  to  our  previous  discussion  of  this  theory. 

It  may  not  be  inexpedient  to  summarize  the  arguments  for  and 
against  interest.  They  have  been  recently  revived  by  M.  Modeste 
in  his  book  Le  pret  a  interet,  dei-tiiere  forme  d''esclavage  (Lending 
at  interest,  —  the  last  form  of  slavery) .  Putting  aside  the  classical 
argument  drawn  from  the  unproductivity  of  capital,  the  two  follow- 
ing are  the  best  known. 

Firstly.  It  is  said  that  by  lending  his  capital  the  lender  incurs 
no  real  privation,  and  that  therefore  he  has  no  claim  to  any  com- 
pensation in  the  shape  of  interest.  This  assertion  has  been  fool- 
ishly answered  by  an  attempt  to  prove  that  the  lender  does  suffer 
harm ;  but  that  is  not  the  question,  and  it  is  no  matter  whether 
he  deprives  himself  or  not.  What  principle  binds  me  to  put 
gratuitously  at  the  disposal  of  my  fellow-men  all  the  property  that 
I  cannot  or  do  not  wish  to  make  use  of  myself?  Must  I  allow 
other  people  to  make  their  abode  in  my  room  because  I  am 
obliged  to  be  away,  or  let  them  eat  my  dinner  because  I  am  not 
hungry?  Such  a  claim  would  need  to  be  based  on  the  principle 
that  a  man  has  a  right  only  to  the  amount  of  wealth  that  is  neces- 
sary for  his  own  consumption,  and  that  the  surplus  belongs  by 
right  to  the  general  bulk  of  mankind ;  clearly,  that  is  simple  com- 
munism, and  the  whole  argument  is  idle  when  once  we  have 
admitted  the  right  to  private  property. 


DISTRIBUTION.  539 

Secondly.  The  second  argument  states  that  perpetuity  of  inter- 
est is  a  monstrous  thing.  At  the  rate  of  five  per  cent  (without 
reckoning  compound  interest)  at  the  end  of  twenty  years  the 
lender  will  by  the  successive  payments  have  recovered  all  hif5 
capital ;  in  forty  years  he  will  have  received  it  twice  over,  and  in 
a  century  five  times  over.  Yet  all  the  time  he  retains  his  right 
to  the  entire  reimbursement  of  the  capital. 

We  must  answer  that  payment  of  interest  is  by  no  means  the 
same  thing  as  repayment  of  the  capital,  any  more  than  rent  is  the 
same  as  the  purchase  price  of  land.  The  two  things  are  altogether 
unrelated.  Interest  is  the  price  of  a  service  rendered,  the  pay- 
ment for  the  use  of  an  instrument  of  production  for  a  certain 
time.  Now,  if  the  service  rendered  is  constantly  renewed  and  the 
use  made  of  the  instrument  can  be  perpetual,  why  should  not 
interest  also  be  perpetual?  We  grant  that  capital  does  not  last 
forever ;  some  capital  is  instantaneously  extinguished,  other  capi- 
tal ceases  to  exist  after  a  certain  time.  But  every  operation  of 
production  (if  only  it  is  well  done)  should  either  immediately,  or 
sooner  or  later,  reproduce  a  value  equal  to  that  of  the  capital  con- 
sumed. Otherwise  it  would  not  be  productive.  Like  the  phoenix, 
capital  eternally  rises  again  from  its  own  ashes-.  This  question  of 
the  legitimacy  of  interest  forms  the  subject  of  a  discussion  between 
Bastiat  and  Proudhon  in  the  collected  works  of  the  former. 

V.    Does  the  Rate  of  Interest  tend  to  fall? 

The  progressive  and  continuous  fall  of  the  rate  of  interest  is  as 
well  accredited  as  any  theory  in  political  economy,  and  economists 
of  the  classical  school  cite  it  as  an  example  of  a  law  which  is  both 
natural  and  harmonious.     Their  method  of  proof  is  as  follows  :  — 

There  are  three  elements  in  interest. 

Firstly,  the  price  paid  for  the  hire  of  capital.  This  is  the  essen- 
tial element,  and  is  determined  by  the  law  of  supply  and  demand  ; 
that  is  to  say,  by  the  greater  or  less  abundance  of  capital  in  the 
market. 


540  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Secondly,  the  premium  of  insurance  against  risk.  For,  though 
the  lender  is  not  concerned  in  the  business,  and  therefore  need 
not  be  anxious  about  losses,  he  always  runs  one  risk,  namely,  the 
insolvency  of  the  debtor. 

Thirdly,  a  share  in  the  produce  of  the  business.  Though  the 
lender  takes  no  actual  part  in  the  business,  and  consequently 
shares  in  the  profits  no  more  than  he  does  in  the  losses,  yet  his 
portion  will  clearly  be  the  larger,  the  more  productive  is  the 
employment  that  the  borrower  makes  of  his  capital. 

These  variations  in  the  three  factors  are  measured  by  the  rate 
of  interest.  We  know  that,  other  things  being  equal,  the  rate  of 
interest  is  higher  the  scarcer  capital  is,  or  the  greater  the  risk  to  be 
run,  or  the  greater  the  facility  of  obtaining  more  productive  em- 
ployment for  the  capital.  The  simultaneous  action  of  these  three 
causes  in  colonies  or  new  countries,  such  as  Australia  and  the 
United  States,  maintains  the  current  rate  of  interest  in  those  regions 
at  eight  or  ten  per  cent,  or  even  higher.  Now,  these  causes, 
which  tend  to  raise  the  rate  of  interest  in  a  new  society,  ought  to 
have  the  reverse  effect  in  a  society  which  is  growing  old,  and 
should  therefore  induce  a  progressive  lowering  of  the  rate  of 
interest.  The  exponents  of  this  theory  hold  that  the  further  we 
proceed,  capital  will  undergo  certain  changes.  It  will  be  less 
productive,  for  the  employments  that  are  possible  for  it  will  grow 
scarcer  and  become  less  and  less  remunerative.  It  will  be  more 
plentiful,  for  it  will  have  been  accumulated  in  large  quantities  by 
a  course  of  saving  which  has  been  carried  on  for  many  generations. 
It  will  be  safer ;  for  a  growing  security  —  political,  legal,  and 
moral  —  will  tend  to  arise  from  a  calmer  life,  from  more  civilized, 
if  not  more  honest,  customs,  from,  a  more  regular  administration, 
and  from  a  government  which  obtains  a  readier  obedience. 

Were  this  law  of  the  progressive  decrease  of  the  rate  of  interest 
a  really  certain  one,  it  would  be  highly  beneficial  both  in  the 
distribution  and  in  the  production  of  wealth.  From  a  distributive 
point  of  view,  as  it  would  steadily  reduce  the  levy  made  by  capital 
on  production  as  a  whole,  it  would  proportionately  increase  the 


DISTRIBUTION.  54I 

share  that  falls  to  labor.  For  we  must  remember  that  the  rate  of 
interest  does  not  only  determine  the  income  of  capitalists ;  it  also 
indirectly  determines  the  rate  of  profits,  house-rent,  and  agricultural 
rent ;  in  other  words,  the  income  of  all  the  possessing  classes. 

In  the  matter  of  production,  the  very  fact  that  it  would  con- 
tinuously lower  the  price  paid  for  capital  and  therefore  the  cost  of 
production,  would  faciUtate  the  execution  of  undertakings  which 
up  to  the  present  have  been  impossible.  For  instance,  take  a 
piece  of  land  that  might  be  cleared,  or  houses  that  might  be  built 
for  workmen's  dwellings ;  —  they  cannot  yield  more  than  three 
per  cent.  With  the  current  rate  of  interest  at  five  per  cent,  no 
capital  could  be  found  for  such  undertakings,  or  they  could  only 
be  carried  on  at  a  loss.  Hence  they  will  not  be  attempted  ;  but 
if  the  rate  of  interest  falls  to  two  per  cent,  every  one  will  hasten 
to  take  up  such  businesses.  Turgot,  in  a  celebrated  figure,  has 
compared  this  fall  of  the  rate  of  interest  to  the  gradual  sinking  of 
the  waters  through  which  new  lands  can  be  put  under  cultivation. 

Though  we  do  not  altogether  deny  the  force  of  these  arguments, 
we  cannot  consider  that  this  law  is  sufficiently  proved.  The  value 
of  capital,  like  the  value  of  land,  of  manual  labor,  or  of  any  other 
article,  is  determined  by  its  utility  and  its  scarcity.  The  most 
rational  forecasts  show  that  capital  must  tend  to  become  more 
and  more  plentiful,  but  we  see  no  reason  why  it  should  become 
less  and  less  useful. 

The  supply  can  constantly  increase ;  but,  given  the  exigencies 
of  production,  the  demand  should  do  the  same.  There  is  no 
proof  that  the  risks  incurred  in  producing  are  less  than  they  used 
to  be,  or  that  they  will  grow  less  in  the  future  in  proportion  to 
man's  increasing  boldness  and  enterprise ;  say,  when  he  travels  by 
balloon  instead  of  by  rail  or  steamer.  Nor  is  the  theory  in 
accordance  with  history ;  at  the  fall  of  the  Roman  Empire,  fifteen 
centuries  ago,  the  rate  of  interest  was  almost  the  same  as  it  is 
to-day ;  and  in  the  Low  Countries,  in  the  eighteenth  century,  it 
was  perhaps  rather  below  the  present  rate.  Moreover,  if  the  rate 
of  interest  is  destined  to  fall  in  an  unlimited  progression,  we  ought 


54>  PRINCIPLES    OF   POLITICAL   ECONOMY. 

to  be  logical  to  the  end  of  the  series,  and  say  that  some  day  it 
\vill  fall  to  zero.  Professor  Foxwell,  the  English  economist,  has 
had  the  courage  to  do  this ;  he  declares  that  the  time  will  come 
when  capitalists,  instead  of  receiving  interest  from  those  to  whom 
they  entrust  their  money,  will  have  to  pay  them  for  keeping  it  for 
them.  Then  will  the  socialists  rejoice,  for  Proudhon's  dream  of 
"gratuitous  credit "  will  have  been  realized;  but  wisely  enough, 
they  do  not  regard  such  a  state  of  things  as  one  of  the  certainties 
of  the  future. 

M.  Paul  Leroy-Beaulieu,  who  is  one  of  the  strongest  defenders 
of  this  theory  of  the  progressive  fall  of  the  rate  of  interest,  relies 
mainly  on  the  notion  that  business  is  destined  to  become  less  and 
less  remunerative.  This  prediction  is  rash  as  far  as  regards  manu- 
facture ;  in  agriculture  its  accuracy  seems  to  follow  from  the  law 
of  diminishing  returns,  though  M.  Leroy-Beaulieu  inconsistently 
refuses  to  accept  that  law.  But  the  meaning  of  the  law  is,  that 
to  double  the  products,  three  or  four  times  as  much  capital  must 
be  consumed ;  therefore,  the  less  generous  to  us  land  becomes, 
the  more  necessary  and  the  more  in  request  will  capital  be. 


CHAPTER  V. 
THE  INDIGENT. 

I.    The  Right  to  Relief. 

The  various  classes  of  persons  that  we  have  passed  under  review 
live  either  on  the  income  they  receive  from  some  form  of  capital, 
or  on  the  returns  from  their  labor.  But  in  every  society  there 
are  a  certain  number  of  men  who  have  neither  of  these  resources 
to  fall  back  on,  for  they  own  nothing  and  do  not  work.  They  are 
consequently  in  danger  of  starving.  There  may  be  three  reasons 
for  their  not  working. 

Firstly.  They  may  not  have  the  strength  to  work.  This  applies 
to  children,  to  the  aged,  and  to  all  those  who  suffer  from  chronic 
diseases  or  infirmities. 

Secondly.  They  may  not  possess  the  means  of  working.  It  is 
not  enough  to  be  willing  to  work ;  a  man  must  also  be  able  to 
find  work ;  in  other  words,  he  must  have  at  his  disposal  the  neces- 
sary materials  and  implements.  But  in  times  of  crisis  and  during 
a  lockout  both  these  conditions  are  wanting. 

Thirdly.  They  may  not  be  willing  to  work.  All  labor  demands 
a  more  or  less  toilsome  effort,  so  that  many  men,  rather  than 
make  this  effort,  and  what  is  worse,  submit  to  the  discipline  that 
labor  always  requires,  will  prefer  to  run  the  chance  of  dying  of 
hunger. 

Now,  the  presence  of  these  three  divisions  of  the  indigent  class 
cannot  be  ignored  by  society,  and  must  claim  attention. 

Common  humanity  of  itself  urges  us  to  take  care  of  the  first 
category.  In  the  natural  order  of  things,  the  family  should  sup- 
port those  of  its  members  who  are  unable  to  keep  themselves  ; 

543 


544  PRINCIPLES    OF    POLITICAL   ECONOMY. 

but  in  our  days  the  family  is  often  scattered,  and  in  the  case  of 
natural  children  ( 70,000  or  80,000  of  whom  are  born  in  France 
yearly)  there  is  no  such  thing  as  a  family.  Society,  then,  must 
take  its  place.  If  a  civilized  society  has  to  allow  its  children  and 
the  aged  to  die  of  hunger,  it  had  better  return  to  the  savage  state 
and  kill  them  outright,  for  that  would  be  less  cruel. 

Society  cannot  neglect  the  second  class,  for  it  is  partly  responsi- 
ble for  their  position.  Its  own  economic  constitution  causes  this 
artificial,  we  might  say  unnatural,  separation  of  the  laborer  from 
the  instrument  of  his  labor,  and  compels  him  to  seek  work  in 
order  to  live.  Crises  and  lockouts  proceed  from  the  very  action 
of  the  law  of  progress,  as  manifested  in  large  production,  in 
mechanical  inventions,  in  international  trade,  and  in  competition. 
It  is  fitting  that  society,  which  in  its  corporate  form  benefits  by 
each  step  of  progress  and  receives  all  the  fruits  of  victory  in  the 
great  battle  of  life,  should  also  bear  the  burden  of  the  fray,  and 
succor  those  who  are  wounded  and  vanquished. 

The  third  category,  though  far  less  interesting  than  the  fore- 
going, claims  the  attention  of  society  because  it  constitutes  a 
public  danger.  The  vagabonds  and  the  beggars  are  the  recruiting- 
grounds  of  the  army  of  crime.  Whenever  any  of  these  commit 
any  offence,  society  is  obliged  to  house  and  feed  them  in  jail; 
and  as  nothing  is  more  expensive  than  the  support  of  a  prisoner, 
it  is  at  once  more  prudent  and  more  economical  to  aid  possible 
prisoners  before  they  actually  become  such.  In  the  new  model 
prisons  in  France  each  cell  costs  ^240. 

The  right  to  be  succored  that  these  various  classes  of  persons 
possess  is  called  the  right  to  relief,  or  the  right  to  char;ty.  Social- 
ists find  something  humiliating  in  the  former  phrase,  and  prefer 
to  use  the  terms,  the  right  to  existence,  or  the  right  to  labor,  for 
those  who  are  able-bodied.  These  are  fine  words,  but  at  bottom 
they  mean  nothing  more  than  a  man's  right  to  demand  of  society, 
i.e.  of  his  fellow-citizens,  the  wherewithal  to  live.  Besides,  this 
right  to  labor  merely  aims  at  the  wages  to  be  earned ;  the  work 
is  only  a  means  to  that  end.     In  reahty  labor  is  not  a  right,  but 


DISTRIBUTION.  545 

a  duty.  Now,  there  is  nothing  humiliating  in  a  man  being  sup- 
ported by  his  fellows  when  he  is  unable  to  keep  himself,  and  it 
may  be  legitimately  claimed ;  none  the  less,  whatever  name  we 
give  it,  it  is  an  act  of  relief. 

But  when  we  employ  the  phrase,  we  must  bring  out  its  whole 
force,  and  note  that  its  correlative  is  an  obligation  on  the  part  of 
society,  which  arises  from  nature  and  also  from  law.  Many 
economists  think  that  charity  or  rehef  is  a  duty  for  society,  but 
not  a  right  for  the  needy ;  but  that  is  mere  legal  hair-spUt- 
ting.  Whenever  a  person  is  in  a  certain  state  which  the  law  has 
to  determine,  society  ought  not  to  be  able  to  evade  the  obliga- 
tion of  aiding  him,  and  the  necessary  expenditure  (for  to  that  in 
practice  is  reduced  the  question  whether  the  relief  shall  be  bind- 
ing by  law  or  optional)  ought  to  be  officially  entered  in  the 
accounts  of  the  State  or  the  parish. 

The  classical  school,  especially  the  adherents  of  Malthus,  pro- 
test against  legal  relief.  Its  arguments  may  be  summed  up  in  the 
familiar  formula,  "  The  numbers  of  the  indigent  tend  to  increase 
in  direct  ratio  to  the  aid  that  they  can  reckon  on."  The  following 
is  the  ordinary  way  of  proving  the  dictum. 

Firstly.  The  right  to  relief  tends  to  encourage  improvidence. 
There  are  numbers  of  people  who  might  perhaps  have  conquered 
their  troubles  had  they  had  only  themselves  to  depend  on ;  but 
they  neglect  to  put  by  for  their  old  age  or  to  provide  for  their 
children,  because  they  count  on  the  State  performing  these  offices 
for  them.     As  the  farm-hands  say  in  England,  — 

"  Hang  sorrow  and  cast  away  care ! 
The  parish  is  sure  to  find  us !  " 

Secondly.  The  right  to  relief  incites  the  pauper  classes  to 
increase  their  numbers.  What  have  they  to  lose  from  having 
many  children,  if  they  are  freed  from  the  care  of  rearing  them  ? 
Nay  !  they  gain  thereby,  for  the  charity  that  is  distributed  is  neces- 
sarily in  proportion  to  the  number  of  children.  Thus,  a  kind  of 
bounty  is  paid  for  the  swelling  of  the  numbers  of  the  wretched, 


546  PRINCIPLES    OF    POLITICAL    ECONOMY. 

and  in  the  lowest  depths  of  society  a  stratum  of  paupers  is 
formed.  Their  names  are  on  the  workhouse  book,  just  as  the 
names  of  all  of  independent  means  are  on  the  income  tax  lists ; 
generation  after  generation  they  transmit  the  heirloom  of  their- 
rights  and  of  their  vices.  A  despised  race  are  they,  who  are  too 
degraded  to  be  dissatisfied  with  their  lot  and  ever  to  aspire  to 
rise  above  it. 

Thirdly.  The  right  to  relief  tends  to  weaken  the  productive 
classes  of  society  in  the  interests  of  the  unproductive  classes,  and 
is  thus  in  direct  opposition  to  natural  selection,  which  tends  to 
improve  the  organism  by  causing  the  higher  to  prevail  over  the 
lower  elements.  It  is  obvious  that  paupers  are  not  the  healthiest 
or  the  most  vigorous  portion  of  the  social  organism.  Now,  society 
can  only  support  them  by  means  of  taxes  which  it  has  to  lay  on 
the  product  of  the  labor  of  those  who  do  produce.  But  as  paupers 
increase  ad  liMium,  the  toll  which  they  levy  on  the  true  workers 
will  also  grow  heavier  and  heavier,  and  in  the  long  run  may  hurl 
into  pauperism  this  really  industrious  class.  As  there  are  many 
men  who  can  only  just  make  both  ends  meet,  and  who  are  on  the 
verge  of  indigency,  a  slight  pressure  of  this  tax  may  drive  them 
down  beneath  that  fatal  level  to  swell  the  numbers  of  the  poor. 
In  England  small  proprietors  are  sometimes  unable  to  pay  the 
poor-rate,  if  it  grows  too  heavy,  and  are  then  turned  out  of  their 
houses ;  their  means  are  exhausted,  and  they  become  recipients, 
instead  of  givers,  of  relief.^ 

This  theory  of  the  proportional  increase  of  paupers  is  certainly 
too  dogmatic,  for  it  is  now  recognized  (and  statistics  are  not 
hostile  to  the  assertion)  that  the  number  of  recipients  of  relief  in 
England  is  regularly  diminishing  year  by  year. 

These  arguments  only  show  that  we  cannot  be  too  careful  in 
the  organization  of  public  charity,  but  they  must  not  make  us 
condemn  the  right  to  relief. 

1  This  has  been  largely  the  result  of  more  stringent  administration,  i.e.  the 
relief  has  become  less  and  less  to  be  reckoned  on.  It  has  become  more  and 
more  difficult  to  get.  —  J.  B. 


DISTRIBUTION.  547 

It  is  true  that  a  prospect  of  the  receipt  of  a  virtual  income 
from  pubHc  charity  may  reduce  productive  activity  or  diminish 
saving ;  but  the  same  effect  is  more  surely  brought  about  by  the 
certainty  of  a  pension,  the  hope  of  an  inheritance,  or  the  mere 
possession  of  a  certificate  of  government  stock. 

It  is  true  that  the  economic  evolution  of  the  social  organism 
may  be  injured  by  our  supporting  and  keeping  all  those  who  are 
diseased,  infirm,  incapable,  or  idle,  or  who  are  only  simpletons 
and  careless  of  their  affairs ;  but  moral  evolution,  which  is  of  no 
less  importance,  would  be  seriously  harmed  if  the  guiding  principle 
of  any  society  was,  "  Blot  out  the  wretched  !  " 

Finally,  it  is  true  that  the  birth-rate  is  higher  in  the  classes  who 
receive  relief  than  in  those  who  support  themselves ;  but,  if  the 
children  of  the  former  can  be  made  useful  citizens,  the  apparent 
harm  would  be  really  a  benefit,  especially  in  France,  where  the 
wealthy  classes  either  cannot  or  will  not  increase  their  numbers. 

II.     The  Organization  of  Public  Relief. 

Public  relief  should  be  organized  on  the  following  principles  :  — 
Firstly.  It  should  be  carried  out  by  the  district  or  local  au- 
thorities, or  by  the  parish,  as  is  the  case  in  England.  For,  as  the 
commune  or  district  is  usually  a  small  society,  it  has  far  more 
facilities  than  the  State  for  discriminating  between  those  who  are 
really  in  want  and  those  who  are  not.  Further,  it  is  generally 
more  saving  of  its  money.  Under  this  system  no  one  has  a  right 
to  relief  except  in  the  district  or  parish  to  which  he  belongs.  This 
obligation  of  legal  domicile  has  some  disadvantages,  for  in  partic- 
ular it  stirs  up  interminable  disputes  between  respective  districts ; 
but  in  France  it  might  have  the  special  advantage  of  keeping 
agricultural  laborers  in  the  parishes  of  their  birth,  and  of  thus 
partially  preventing  the  depopulation  of  the  rural  districts  and  the 
filling  to  repletion  of  large  towns.  The  various  parishes  might 
be  saved  from  a  too  great  inequality  of  their  expenses,  if  they 
were  to  amalgamate  together  as  they  do  in  England ;  and  if  their 


548  PRINCIPLES    OF    POLITICAL    ECONOMY. 

funds  were  really  insufficient,  the  State  might  come  to  their 
aid. 

Secondly.  Relief  should  be  obligatory ;  in  other  words,  the 
expenses  should  be  provided  for  by  a  special  fund.  This  is  not 
so  in  France ;  of  course,  like  every  other  civilized  country, 
France  has  a  system  for  distributing  relief,  and  in  this  way  more 
than  ;;/^2, 000,000  are  spent  yearly,  —  the  "  Budget  of  Public  Re- 
lief" amounting  to  ^1,600,000  for  the  local  parishes  (over  half  of 
which  goes  to  Paris  alone),  and  ^520,000  for  the  Central  Gov- 
ernment. But  this  expenditure  is  in  the  main  optional  alike  for 
communes,  department,  or  government ;  though  there  are  two 
classes  of  paupers  for  whom  expenditure  is  partially  compulsory, 
namely,  foundlings  and  the  insane.  No  law  has  ever  organized  the 
right  to  relief  in  a  positive  way,  though  it  has  figured  in  most  of 
the  numerous  Constitutions  with  which  France  has  been  blessed ; 
hence  it  has  remained  as  an  empty  abstract  principle.  The  main- 
springs of  public  relief  in  France  are  charity  boards  (bureaux  de 
bienfaisajice) ,  hospitals,  almshouses,  homes  {hospices),  and  asy- 
lums. The  charity  boards  give  outdoor  relief  to  the  needy ;  the 
almshouses  and  asylums  shelter  the  aged,  children,  and  the  help- 
less {i.e.  the  blind,  deaf  mutes,  and  the  insane)  ;  the  hospitals 
receive  the  sick. 

There  are  15,780  charity  boards  in  France;  but  as  there  are 
36,117  communes  in  the  country,  more  than  half  (but,  we  may 
observe,  the  least  important  of  them)  lack  such  useful  institutions. 
Their  income  (including  local  subscriptions)  amounts  to  about 
;,^2,ooo,ooo  ;  but,  as  they  do  not  distribute  very  much  more  than 
;^i, 000,000  a  year,  and  the  recipients  of  reUef  exceed  1,400,000 
in  number,  the  average  per  head  yearly  is  the  preposterously 
small  sum  of  1 7^-.  6d.,  or  so. 

Far  ampler  are  the  resources  of  the  hospitals,  asylums,  etc.,  for 
these  amount  to  more  than  ^^^^5 ,000,000  (State  and  local  contribu- 
tions being  included) .  Most  of  these  institutions  belong  to  their 
respective  districts,  though  a  few  are  government  property.  The 
hospitals  fulfil  their  requirements  adequately,  but  the  asylums  and 


DISTRIBUTION.  549 

almshouses  are  less  satisfactory.  This  is  especially  so  with  alms- 
houses for  the  aged  ;  admittance  into  these  can  only  be  obtained 
on  payment  of  board,  or  by  orders  which  are  very  difficult  to  pro- 
cure. In  fact,  the  condition  of  the  aged  poor  in  France  is  a  dis- 
grace to  the  country. 

All  these  institutions  are  directed  by  administrative  committees  ; 
their  main  income  is  derived  from  property  which  they  have 
acquired,  either  by  gift  or  by  bequest,  in  their  capacity  of  charita- 
ble bodies ;  besides  the  local  subsidies,  mentioned  above,  which 
are  purely  optional,  they  have  a  few  other  minor  sources  of 
revenue.  For  example,  the  State  allows  them  the  proceeds  of  a 
few  small  taxes,  such  as  the  ten  per  cent  levied  on  the  receij^ts  of 
theatres  and  of  public  performances. 

In  England,  as  in  all  other  Protestant  countries,  public  relief  is 
obligatory.  In  that  country  it  is  organized  by  a  series  of  laws, 
the  first  of  which  was  passed  in  the  reign  of  Queen  Elizabeth,  the 
whole  body  constituting  an  imposing  edifice  of  legislation.  Each 
parish  provides  for  the  necessary  expenditure  by  a  special  tax 
known  as  the  poor-rate,  which  amounts  to  about  ;,^8,ooo,ooo.^ 

On  this  question  of  public  relief  and  legislation  thereon,  Europe 
may  be  divided  into  two  well-marked  portions.  All  Protestant 
countries  recognize  the  principle  of  compulsory  legal  relief;  in 
Catholic  countries  public  relief  is  only  optional.  There  is  a  curious 
historical  reason  for  this.  During  the  whole  of  the  Middle  Ages, 
embolic  bodies,  e.g.  the  monasteries,  were  entrusted  with  provision 
for  the  needy ;  in  the  countries  which  accepted  the  principles  of 
the  Reformation,  the  State,  on  assuming  the  possession  of  the 
property  of  these  religious  bodies,  also  took  over  all  their  duties, 
including  this  duty  of  supplying  relief. 

Thirdly.  But  this  relief  should  so  far  as  possible  be  carried  on 
in  special  institutions,  respectively  adapted  for  the  various  classes 
of  paupers. 

1  For  the  year  ending  Lady  Day,  18S8,  the  amount  actually  expended  in 
England  on  relief  was  nearly  ;(^S,50o,ooo;  in  Scotland,  ;,^887,ooo;  in  Ireland, 
nearly  /^i, 391,000.  —  J.  B. 


5  so  PRINCIPLES    OF    POLITICAL    ECONOMY. 

(a)  It  should  be  administered  to  the  really  helpless  —  children, 
the  old,  the  blind,  and  so  forth  —  in  homes  and  asylums,  the 
places  in  which  should  always  be  in  proportion  to  the  requirements. 

{d)  Able-bodied  paupers,  who  have  no  work  to  do,  should  be 
received  in  workhouses,  which  they  should  be  free  to  enter  and 
free  to  leave  ;  in  a  more  special  manner,  they  should  be  drafted 
into  agricultural  colonies,  and  should  be  employed  in  field  labor. 

We  have  previously  refused  to  admit  the  right  to  work ;  but 
when  dealing  with  the  relief  of  able-bodied  paupers  we  m.ust  retain 
the  obligation  to  work,  which  is  quite  a  different  thing.  But  it  is 
not  easy  to  find  a  productive  form  of  labor,  and  it  is  particularly 
difficult  to  force  the  recipients  of  relief  to  execute  it.  Every  one 
knows  the  barracks-like  workhouses  of  England,  the  inmates  of 
which  have  to  perform  work  which  is  degrading  by  its  very  use- 
lessriess ;  such  as  making  ropes  out  of  tow,  and  then  untwisting 
the  ropes  to  reconvert  them  into  tow. 

Far  more  satisfactory  results  have  been  obtained  by  the  agri- 
cultural colonies  or  settlements  in  Holland  and  in  Germany.  In 
these  places  the  paupers  work  more  willingly  ;  they  do  not  feel  that 
they  are  pent  up  in  prison,  and,  above  all,  their  labor  is  infinitely 
more  productive,  for  most  of  these  institutions  almost  pay  their 
own  expenses.  Further,  and  this  is  the  essential  aim  of  all  relief, 
many  of  these  needy  folks  are  enabled  to  emerge  from  the  pauper 
state,  and  become  farmers  or  even  landowners.  Fuller  details  on 
this  system  and  all  the  other  various  forms  of  public  or  private 
relief  may  be  found  in  M.  Robin's  book  on  Hospitalite  et  Travail. 

{c)  Vagrants  and  beggars  who  refuse  to  work  should  be  confined 
in  houses  of  correction  and  should  be  compelled  to  work ;  the 
period  of  confinement  should  be  long  enough  to  allow  of  the 
exercise  of  a  moral  and  reforming  influence. 

On  this  matter  the  French  law  is  absurd.  In  the  opinion  of 
the  Penal  Code  it  is  an  offence  to  have  no  home  or  visible  means 
of  existence  ;  and  every  year  sentences  of  a  few  days  of  imprison- 
ment are  passed  on  tens  of  thousands  of  unfortunates,  who  are 
guilty  of  having  neither  hearth  nor  home.     The  kind  prison  grants 


DISTRIBUTION.  551 

them  these  during  their  brief  sojourn  ;  but  when  they  leave,  what 
can  they  do  but  begin  again  ?  Thus  they  pass  their  hfe  in  a  con- 
stant succession  of  convictions,  until  their  ripe  experience  of 
prisons  turns  them  into  hardened  criminals.  Not  until  law  has 
established  asylums  for  all  paupers  will  it  be  able  to  do  away  with 
beggars  and  punish  vagabonds;  and  then  it  must  beware  of 
shutting  them  up  for  a  few  days  only,  and  especially  of  associating 
them  with  professional  criminals. 

It  must  not  be  inferred  from  our  suggestions  that  the  public 
organization  of  charity  should  absolutely  forbid  outdoor  relief;  for 
that  system  has  the  great  advantages  of  being  far  less  costly  and 
of  not  breaking  up  family  life  by  enforced  separation.  But, 
generally  speaking,  public  officials  are  unable  to  practise  this 
form  of  relief  with  due  discernment,  and  experience  shows  that 
in  their  hands  the  unworthy  members  of  the  poorer  classes  are 
favored,  and  that  their  numbers  tend  to  increase  to  an  unlimited 
extent. 

After  a  celebrated  inquiry  which  was  made  in  1834,  the  English 
altogether  abandoned  the  giving  of  outdoor  relief,  and  confine- 
ment in  the  "  Union  "  was  prescribed  as  the  necessary  condition 
of  all  public  assistance ;  since  then,  however,  this  rigorous  pro- 
vision has  been  gradually  relaxed.  We  have  already  observed 
that  the  French  charity  boards  were  established  solely  for  the 
purpose  of  outdoor  relief.  The  foregoing  discussion  brings  us  to 
our  last  rule. 

Fourthly.  Whenever  public  relief  takes  the  outdoor  form,  pri- 
vate aid  should  be  made  use  of  as  far  as  possible ;  the  necessary 
inquiries  and  the  distribution  of  relief  being  entrusted  to  private 
individuals  who  are  willing  to  help. 

Voluntary  workers  are  always  superior  to  agents  who  are  offi- 
cially appointed  by  the  local  authorities,  as  in  the  case  with  the 
French  charity  boards,  or  who  are  chosen  by  committees  such  as 
are  charged  with  these  functions  in  England.  From  a  felicitous 
union  of  public  relief  and  of  private  charity  arises  the  superiority 
of  the  famous  Elberfeld  system,  an  article  on  which  appeared  in 


552  PRINCIPLES    OF    POLITICAL    ECONOMY. 

the  Revue  d'' Economie  politique  for  18S7  from  the  pen  of  M. 
Saint  Marc.-^ 

In  all  cases,  however,  outdoor  relief  should  be  administered 
under  the  two  following  restrictions  :  — 

Firstly.  It  should  be  given  not  in  money,  but  in  kind ;  for 
example,  in  tickets  for  public  kitchens,  or  in  food  and  other 
articles  bought  by  the  distributors  of  relief  themselves. 

Secondly.  A  prior  inquiry  should  always  be  made,  and  that  the 
investigation  should  be  thoroughly  done  it  is  necessary  to  have 
an  office  specially  devoted  to  the  obtaining  of  information.  There 
exists  in  Paris  an  agency  established  by  private  initiative,  which 
has  rendered  most  valuable  service  in  this  respect. 

III.     Is  Pauperism  on  the  Increase? 

It  is  a  disputed  question  whether  the  indigent  or  pauper  classes 
are  or  are  not  increasing  in  number.  Naturally,  the  socialists 
assert  that  there  is  an  increase,  and  consider  it  to  be  a  demon- 
strable fact  that  the  rich  are  always  growing  richer  and  the  poor 
poorer.  The  optimists  deny  this,  and  show  by  statistics,  espe- 
cially English  statistics,  that  the  poor  are  on  the  decrease.  In 
this  matter  figures  are  of  little  value,  for  there  is  no  more  elastic 
a  term  than  pauperism.  An  answer  to  the  question  must  rather 
be  found  in  a  consideration  of  those  various  causes  of  poverty 
which  we  have  previously  pointed  out.  We  divided  the  indigent 
or  paupers  into  three  classes  :  those  who  are  prevented  from 
working  through  weakness  or  infirmities ;  those  who  might  work 
if  they  had  a  chance,  which  they  have  not ;  and  those  who  do 
not  want  to  work. 

As  regards  the  first  class,  the  progress  of  hygiene  and  of  science 
as  a  whole  ought  to  be  able  to  reduce  the  numbers  of  those  who 
are  stricken  with  incurable  infirmities.  At  any  rate,  some  of  them, 
such  as  the  blind  and  the  deaf  mutes,  should  be  put  in  the  way 
of  plying  a  productive  calling.     On  the  other  hand,  the  ranks  of 

1  See  the  English  Government  I'.lue  Book  "  Reports  on  the  Klberfehl  Poor 
Law  System  and  German  Workmen's  Colonies"  (C.  5340>  '888. — J.  B. 


DISTRIBUTION.  553 

the  insane  are  being  terribly  swollen  by  several  causes,  the  chief  of 
which  is  the  abuse  of  drink.  Another  potent  cause  of  pauperism, 
the  birth  of  illegitimate  children,  is  Hkewise  on  the  increase. 

We  must  say  without  hesitation  that  the  second  class  is  exhibit- 
ing a  tendency  to  grow;  the  loss  of  work  which  results  from 
mechanical  inventions  or  from  excess  of  production,  the  eco- 
nomic crises  which  spring  from  the  evolution  of  large  production 
and  of  international  competition  —  these  were  unknown  to  our 
fathers,  and  are  the  peculiar  characteristics  of  our  own  time. 

To  take  the  third  division  :  we  might  be  justified  in  thinking 
that,  with  the  progress  of  public  education  and  under  the  influ- 
ence of  the  more  sedentary  customs  of  civilized  life,  we  might  get 
.id  of  the  idleness,  love  of  roving,  and  pure  rascality  which  were 
such  potent  factors  in  the  social  life  of  the  Middle  Ages  and  of 
antiquity,  and  still  retain  their  power  in  the  East.  Yet  we  must 
not  rely  too  much  on  the  realization  of  such  hopes.  Vagabonds, 
tramps,  and  beggars  still  exist  in  our  midst  in  huge  numbers,  nor 
do  they  show  any  signs  of  growing  fewer ;  and  the  occupation  of 
"  professional  beggar  "  is  becoming  more  lucrative  than  ever.  Out 
of  119,000  offenders  who  appeared  before  the  French  police 
courts  in  1886,  33,000  were  classed  as  vagabonds  or  beggars.  In 
Paris  there  are  about  8000  people  who  take  their  night's  rest  in 
the  streets  or  under  the  arches  of  the  bridges. 

After  full  consideration,  we  are  led  to  conclude  that,  in  modern 
society,  the  causes  which  tend  to  develop  pauperism  are  more 
active  than  those  which  might  effect  its  diminution.  But  we  will 
not  add  that  pauperism  will  exist  forever  and  be  a  constantly 
heavier  burden.  Unless  we  are  utterly  to  despair  of  the  future  of 
our  race,  we  must  hope  that  some  of  the  above-mentioned  causes, 
and  perhaps  the'  most  powerful  of  them,  will  be  mitigated  by  the 
advance  of  time.  Poverty,  which  arises  from  individual  and 
natural  causes,  such  as  the  feebleness  of  old  age,  disease  and  ill- 
ness, and  physical  and  moral  infirmities,  may,  perhaps,  be  relieved 
by  a  sound  system  of  insurance.  But  the  pauperism  which  is  the 
result  of  general  and  economic  causes  can  be  put  to  flight  only 
by  radical  alterations  in  the  present  social  order. 


APPENDIX. 

THE    PUBLIC  FINANCES  OF  FRANCE. 

I.     Public  Expenditure. 

The  constant  increase  in  public  expenditure  is  one  of  the 
characteristic  features  of  the  time.  At  the  beginning  of  the  pres- 
ent century  and  until  the  year  1830  or  so,  the  pubhc  expenditure 
of  France  scarcely  exceeded  ^40,000,000  sterling ;  it  has  now 
reached  the  figure  of  _;,{^  130,000,000,  and  if  we  include  the  sepa- 
rate expenses  incurred  by  the  communes  and  departments,  the 
whole  will  amount  to  ^160,000,000,  Thus,  in  less  than  a  man's 
lifetime,  it  has  more  than  trebled. 

We  reproduce  in  an  abridged  form  from  M.  de  Foville's  excel- 
lent statistical  handbook.  La  Fraiice  Econotnique,  a  table  which 
shows  the  successive  increases  of  the  French  budget  from  the 
days  of  Saint  Louis. 

FRANCS. 

Saint  Louis  (year  1243) 3,700,000 

Francis  I  (year  15 15) 72,800,000 

Henry  IV  (year  1607) 90,800,000 

Louis  XIV  (year  1683) 226,000,000 

Louis  XVI  (year  1789) 475,000,000 

Napoleon  (year  18 10) 1,007,000,000 

I>ouis  Philijipe  (year  1840) 1,363,000,000 

Napoleon  III  (year  1869) .  1,904,000,000 

Repul)lic  (year  1891,  estimated) 3,247,000,000 

Now,  the  recent  phases  of  this  phenomenon  may  be  partly 
explained  by  the  general  augmentation  of  wealth  and  the  fall  in 
the  value  of  money ;  but  the  enormous  increase  of  ])ublic  expen- 
diture cannot  proceed  from  these  causes  alone.     There  must  be 

554 


APPENDIX.  555 

Others.  A  full  examination  of  the  question  may  be  found  in  the 
book  of  M.  Wuarin,  a  professor  at  Geneva,  on  "  Le  Contribuable, 
ou  comment  defendre  sa  bourse."  ("  The  taxpayer  and  how  to 
defend  his  pocket.")      We  must  confine  ourselves  to  the  following. 

Firstly.  One  great  cause  is  the  growth  of  the  military  spirit 
with  all  its  consequences,  i.e.  war  and  an  armed  peace  which  is 
as  costly  as  war.  Nearly  two-thirds  of  the  ;j^  130,000,000  spent 
by  the  French  government  are  used  in  paying  for  past  wars  or  in 
preparing  for  future  wars.  Forty  million  pounds  are  required  for 
the  French  army  and  navy  estimates,  including  the  so-called  ex- 
traordinary estimate,  and  the  army  pensions.  Further,  almost  the 
whole  of  the  arrears  or  interest  on  the  public  debt,  which  are 
p/^44, 000,000  yearly,  are  the  result  of  loans  which  were  made  in 
the  past  to  meet  war  expenses  or  to  pay  war  indemnities. 

If  the  man  in  the  moon,  or  rather  an  inhabitant  of  Mars,  were 
to  visit  our  planet,  and  learn  that  a  civilized  country  like  France 
was  obliged  to  spend  ^40,000,000  a  year  to  insure  its  safety,  he 
would  pity  her  for  having  such  barbarous  nations  as  neighbors ; 
but  his  astonishment  would  be  unbounded  if  he  were  further  told 
that  these  neighboring  countries,  which  can  justly  claim  to  be  as 
civilized  as  France,  feel  obliged  in  their  turn  to  make  almost  as 
great  sacrifices  for  their  own  defence  against  her.  Under  this 
head  the  new  countries  in  America  and  Australia  have  but  trifling 
burdens  to  bear ;  for  they  have  no  neighbors,  or  rather  their 
neighbors  are  (fortunately)  savages.  As  has  been  sagely  observed, 
this  enormous  inequality  in  expenses,  in  their  favor,  must  finally 
give  them  a  decisive  economic  superiority  over  our  European 
lands. 

Secondly.  A  second  potent  cause  is  the  gradual  extension  of 
the  functions  of  the  State,  for  each  item  in  public  expenditure 
corresponds  to  some  function  of  the  State.  But  one  of  the  most 
disputed  questions  of  the  day  is  the  precise  determination  of  what 
duties  the  State  should  take  upon  itself,  and  how  far  its  action 
should  go.  We  know  that  the  Liberal  school  would  reduce  this 
action  to  the  very  minimum ;  in  its  opinion  the  State  should  con- 


556  PRINCIPLES    OF    POLITICAL    ECONOMY. 

fine  itself  to  the  protection  of  individual  liberty  by  maintaining 
order  at  home  antl  preserving  peaceful  relations  abroad ;  in  otlier 
matters  individual  initiative  will  be  far  more  successful. 

In  his  Precis  iV Economic  politique,  M.  Leroy-Beaulieu  sums  up 
the  various  shortcomings  which  in  the  opinion  of  the  Liberal 
school  should  lead  us  to  discourage  any  extension  of  the  functions 
of  the  State. 

Firstly.  In  the  first  place,  the  State  has  less  initiative  and  is 
less  active  than  private  persons,  for  it  does  not  feel  the  spur  of 
private  interest,  and  has  not  to  fear  competition. 

Secondly.  The  State  has  no  real  superiority  over  individuals, 
either  in  ability,  or  in  impartiality,  or  even  in  continuity  in  its 
plans  and  actions.  This  arises  from  the  origin,  working,  and 
inevitable  vicissitudes  of  any  government  under  any  system  what- 
ever, but  it  is  especially  marked  in  the  democratic  regifne  which 
is  now  becoming  the  rule. 

These  argiunents  are  not  irrefutable.  Individuals,  no  doubt, 
have  given  the  world  all  inventions,  discoveries,  enterprises,  above 
all,  ideas,  for  a  collective  body  is  devoid  of  ideas.  Still,  many  of 
these  projects,  —  such  as  the  abolition  of  slavery,  of  serfdom,  of 
corporations,  —  have  been  effected  by  the  State,  and  perhaps 
could  not  have  been  carried  out  by  private  persons.  Yet,  without 
requiring  the  State  to  enter  into  competition  wath  individuals,  still 
we  can  and  ought  to  demand  this  much  from  it :  it  should  repre- 
sent and  guard  the  collective  and  social  interests  against  the  con- 
stant encroachments  of  individual  interests.  That,  surely,  is  a 
large  enough  task  ! 

The  school  called  State  Socialists  does  not  accept  the  Liberal 
school's  theory  of  the  "  State  as  policeman."  It  attributes  to  the 
State  a  far  higher  mission,  —  not  merely  the  seeing  that  justice  is 
done,  but  the  inauguration  of  a  reign  of  justice  ;  hence  State  in- 
terference can,  and  ought  to  be,  extended  to  a  host  of  points  in 
our  social  system. 

Neither  of  these  two  schools  represents  the  extremes  of  their 
respective  lines  of  thought. 


APPENDIX.  557 

Beyond  the  Liberal  school  we  find  the  anarchists,  who  entirely 
do  away  with  the  State,  and  public  expenses  along  with  it.  Push- 
ing to  their  extreme  consequences  the  arguments  urged  by  the 
Liberal  school,  the  anarchists  proceed  to  declare  that  individual 
initiative  is  perfectly  capable  of  preserving  order  and  security  at 
home  and  abroad.  Men  are  able  to  govern  themselves ;  and  that, 
indeed,  is  the  sine  qua  no7i  of  their  freedom.  In  the  matter  of  jus- 
tice, all  crime  can  be  repressed  by  an  exercise  of  lynch  law,  and 
lawsuits  can  be  settled  by  the  appointment  of  arbitrators.  Besides, 
the  abolition  of  private  property  will  do  away  with  most  offences 
and  with  all  actions  at  law.  The  country  can  be  thoroughly  pro- 
tected from  attacks  by  the  levying  of  voluntary  militia  in  case  of 
need ;  and  further,  the  abolition  of  distinctions  between  nations 
and  the  blotting  out  of  frontiers  (another  item  in  the  anarchist 
programme)  will  inevitably  put  a  stop  to  all  war. 

Beyond  the  State  socialists  we  find  the  collectivists,  who  turn 
the  State  into  the  general  supplier  of  all  social  and  economic 
wants.  The  State  will  provide  for  the  education  of  all  children, 
will  support  the  aged,  will  be  the  only  landed  proprietor,  and  be 
the  sole  carrier-on  of  all  trade  and  all  industry.  Then,  as  all 
individual  enterprise  will  be  converted  into  a  public  service,  and 
all  private  incomes  become  salaries,  individual  expenses  will  tend 
to  be  absorbed  in  the  expenditure  side  of  the  State  accounts. 

According,  then,  to  the  pet  economic  doctrine  which  a  man 
chooses  to  adopt,  public  expenses  can  range  from  zero  up  to 
infinity,  and  it  is  curious  to  note  that  the  schools  which  occupy 
the  opposite  poles  of  thought  both  demand  socialism. 

We  cannot  here  incidentally  discuss  the  complex  question  of 
State  interference.  It  is  enough  for  us  to  note  that  all  countries 
(England,  the  land  of  "self-help,"  included)  are  showing  an 
increasingly  marked  tendency  to  widen  the  State's  sphere  of 
action.  This  is  manifested  not  only  in  the  large  development 
of  some  branches  of  the  public  service,  such  as  public  education 
or  public  works,  but  also  in  the  formation  of  new  State  offices,  or 
at  any  rate,  of  important  ministerial  departments.     Among  these 


558  PRINCIPLES    OF    POLITICAL    ECONOMY. 

are  offices  or  boards  which  deal  with  agriculture  and  with  trade. 
That  which  is  concerned  with  labor  is  of  very  wide  scope  ;  for  it 
superintends  manufactures,  so  as  to  insure  the  due  observance  of 
laws  which  restrict  the  hours  of  labor,  or  prescribe  certain  steps 
for  the  security  of  the  employed  and  of  the  public.  Besides 
having  to  deal  with  factory  legislation  in  general,  it  has  to  issue 
statistical  reports  which  relate  to  labor,  such  as  the  excellent 
publications  of  the  Labor  Bureaux  in  the  United  States.  Public 
rehef  engages  the  attention  of  another  office ;  nor  must  we  omit 
the  board  of  public  health,  which  is  concerned  with  unsanitary 
dwellings,  the  prevention  of  epidemics,  and  the  adulteration  of 
food. 

Naturally  enough,  this  further  extension  of  the  functions  of  the 
State  necessitates  a  proportionate  increase  in  public  expenditure. 
Indeed,  it  is  the  second  cause  which  we  assigned  for  that  phe- 
nomenon, and  it  is  far  more  easily  justified  than  the  first 
cause,  the  growth  of  the  military  spirit.  It  is  right  that  the  ex- 
penses incurred  on  behalf  of  the  collective  interests  should  be 
heightened  as  social  organization  develops,  and  as  men  perceive 
more  clearly  and  appreciate  more  earnestly  the  solidarity  which 
binds  them  together.  This  enlargement  of  the  duties  to  be  per- 
formed by  the  State  might  be  dangerous  if  it  ever  deadened  indi- 
vidual energy  ;  but  up  to  the  present  the  due  bounds  of  the  action 
of  public  authority  do  not  seem  to  have  been  exceeded  by  any 
modern  government.  In  most  civilized  countries  the  functions 
of  the  State  fall  under  the  following  heads  :  — 

Firstly.  The  maintenance  of  order  and  the  administration  of 
justice  at  home.  This  duty  falls,  in  England,  to  the  Home  Office  ; 
in  France,  to  the  Ministries  of  the  Interior,  and  of  Justice. 

Secondly.  The  preservation  of  safety  as  against  foreign  powers. 
This  is  undertaken  by  the  Foreign  Office,  the  War  Office,  and  the 
Admiralty. 

Thirdly.  The  furthering  of  the  intellectual  and  moral  develop- 
ment of  society.  This  is  provided  for  by  the  Education  Office, 
and  ministries  relating  to  PubHc  Worship  and  the  Fine  Arts. 


APPENDIX.  559 

Fourthly.  The  development  of  the  productive  powers  of  a 
country.  Such  resources  are  superintended  by  government  de- 
partments referring  to  Pubhc  Works,  to  the  Postal  and  Telegraph 
services,  to  Agriculture,  and  to  Trade. 

It  is  difficult  to  see  which  of  these  public  functions  could  be 
subtracted  from  the  list ;  on  the  contrary,  it  could  be  easily  swelled 
by  the  addition  of  departments  relating  to  Labor,  to  Public  Relief, 
and  Public  Health. 

In  any  case  it  would  be  unjust  to  saddle  so-called  State  socialism 
with  most  of  the  responsibility  for  public  burdens.  If  from  the 
;;^ 1 30,000,000  sterling  which  are  spent  by  the  French  government 
we  deduct  the  ^^40,000,000  for  the  army  and  navy,  the  ;^40,ooo,- 
000  on  the  pubhc  debt  (which  is  mainly  the  outcome  of  war) ,  and 
the  ^16,000,000  or  ;^20,ooo,ooo  which  are  the  cost  of  the  collec- 
tion of  taxes,  about  ^30,000,000  of  public  expenses  remain  over 
for  distribution  amongst  the  various  offices.  When  we  remember 
that  the  total  revenue  of  France  is  calculated  to  be  ;!^8oo,ooo,ooo 
to  ;^ 1, 000,000,000  sterling,  it  scarcely  seems  excessive  for  three  or 
four  per  cent  of  this  sum  to  be  devoted  to  expenses  needed  for 
the  public  welfare.  Still,  it  is  only  fair  to  add  the  ;^32,ooo,ooo  to 
_;^36, 000,000  which  represent  the  independent  expenditure  of  the 
various  departments  and  communes.  Then  the  proportion  of 
the  collective  expenses  to  the  entire  revenue  is  raised  to  seven  or 
eight  per  cent. 

II.    The  Public  Revenue. 

Private  persons  are  obliged  to  regulate  their  expenses  according 
to  their  income ;  the  State,  on  the  contrary,  usually  fixes  its  re- 
ceipts according  to  its  expenditure.  As,  in  France,  for  example, 
it  requires  ^130,000,000  for  the  accomplishment  of  its  various 
functions,  that  is  the  very  sum  it  will  ask  for  from  its  taxpayers. 
The  government  has  an  incontestable  right  to  make  this  demand, 
for  it  is  just  and  indispensable  that  each  member  of  every  society 
should  bear  his  share  of  expenses  of  a  public  nature.     Of  late 


560  PRINCIPLES    OF    POLITICAL    ECONOMY. 

years  several  learned  treatises  have  been  published,  especially  in 
Germany,  in  Austria,  and  in  Italy,  on  the  economic  theory  of 
taxation,  viz. :  on  the  determining  whether  a  tax  is  the  price  of  a 
service  rendered  by  the  government.  A  complete  summary  may 
be  found  in  Mazzola's  Dati  scientifici  delle  finanze.  We,  however, 
must  proceed  with  our  general  discussion. 

It  is  not  an  easy  matter  to  levy  ^^i 30,000,000  on  a  nation  (or 
more  than  ^160,000,000,  if  we  reckon  the  separate  expenses  of 
communes  and  departments),  for  that  makes  no  less  than  ^\  a 
head  for  each  Frenchman.  Till  the  present  day,  statesmen  and 
financiers  have  applied  all  their  ingenuity  to  discovering  sources 
of  public  revenue  which  shall  burden  the  taxpayer  as  little  as  need 
be,  and  be  imperceptible,  if  that  can  be  possibly  effected.  Now, 
however,  the  tendency  is  to  proceed  on  quite  a  different  principle. 
We  will  now  pass  under  review  all  the  conceivable  sources  of 
public  revenue. 

Section  i.    The  Revenue  derived  from  State  Lands. 

If  the  State  were  in  the  position  of  a  private  individual  who 
has  his  own  property,  it  might  perhaps  provide  for  all  public 
expenses  out  of  the  revenue  from  its  own  possessions,  and  have 
no  need  to  call  upon  the  taxpayer;  for  it  would  be  self-sup- 
porting. 

Such  was  partly  the  case  under  the  feudal  system,  and  that  state 
of  things  still  subsists  in  semi-barbarous  societies  in  which  the 
private  fortune  of  the  sovereign  and  the  property  of  the  nation 
are  scarcely  distinguishable.  The  sovereign  princes  of  India, 
like  the  former  kings  of  France,  support  their  armies  from,  and 
themselves  depend  in  large  measure  on,  the  revenues  of  their  own 
domains.  But  in  civilized  countries  State  lands,  as  a  rule,  have 
been  reduced  to  a  mere  shadow  of  their  former  extent.  In 
France  nothing  remains  to  the  State  save  forests  and  a  number  of 
unproductive  tracts.  The  gross  returns  from  the  whole  are  not 
more  than  a  couple  of  million  pounds,  and  the  necessary  expendi- 


APPENDIX.  561 

tures  on  these  estates  would  reduce  that  sum  by  half.  That  is  a 
mere  drop  in  the  ocean  of  pubHc  expenses. 

However,  in  some  countries,  particularly  in  Prussia  and  the 
other  German  States,  the  revenue  from  the  crown  domains 
amounts  to  a  good  many  million  pounds ;  but  these  estates  are 
not  merely  forests,  but  also  include  farms,  mines,  and  factories. 

If  the  current  theories  of  land  nationalization  are  ever  actually 
applied,  —  for  instance,  if  the  governments  of  the  United  States  and 
of  the  Australian  colonies  were  to  decide  to  reserve  for  themselves 
the  proprietorship  of  public  lands,  and  were  only  to  grant  them 
to  private  persons  as  temporary  holdings,  —  in  that  case  the  future 
might  witness  the  formation  of  State  domains  of  large  extent  and 
the  consequent  abolition  of  all  or  some  taxes.  That  is  one  of  the 
chief  arguments  adduced  in  favor  of  the  systems  of  land  national- 
ization. 

Section  2.    Revenues  proceeding  from  Various  Industries  and 
Monopolies. 

For  the  State  to  be  self-supporting,  we  are  not  obliged  to  con- 
ceive it  as  possessing  estates  and  holding  the  position  of  a  land- 
owner who  lives  on  the  income  he  derives  from  his  property. 
We  can  equally  well  suppose  that  it  founds  an  industry  or  starts  a 
lucrative  business,  and  thus  earns  its  living  like  any  ordinary  person. 

This  branch  of  the  public  revenue  is  of  very  considerable 
importance,  and  tends  to  increase  daily  in  proportion  to  the 
development  of  State  socialism.  In  France,  in  particular,  the 
State  carries  on  industries  of  the  most  varied  kinds.  It  manu- 
factures money  (in  the  shape  of  coin),  tobacco,  powder,  playing- 
cards,  porcelain  (such  as  the  Sevres  ware),  and  carpets  (for 
instance,  the  Gobelins) .  In  its  capacity  of  printer  it  carries  on 
the  Ifnprimerie  Nationale,  and  as  a  journalist  it  conducts  the 
Journal  Officicl.  It  works  a  partial  system  of  State  railways,  and 
takes  charge  of  all  postal  and  telegraphic  business.  The  returns 
from  all  these  sources  give  a  gross  product  of  _;;^30,ooo,ooo  ;  but 
as  heavy  expenses  have  to  be  met,  the  net  product  is  far  smaller 


562  PRINCIPLES    OF    POLITICAL    ECOXOMV. 

and  does  not  exceed  ;!^  14,000,000.     We  give  two  of  the  principal 
items :  — 

GROSS  PRODUCT.  NET  PRODUCT. 

Tobacco  (1884) 378,000,000  f.  305,000,000  f. 

(about  ^15,000,000)         (about  ;,^i 2,200,000) 

Post-office  and  telegraphs  (1885)   .     .  167,000,000  f.  30,000,000  f. 

(about    ^6,600,000)         (about    ;^  1,200,000) 

Thus  very  large  profits  are  made  from  the  tobacco  industry  by 
the  side  of  a  very  small  return  from  the  working  of  the  postal 
and  telegraphic  systems ;  for  the  State  rightly  strives  to  make  large 
gains  in  the  former  business,  but  only  small  profits  from  the  latter. 

The  particular  businesses  carried  on  by  the  State  vary  in  dif- 
ferent lands.  Thus  in  some  countries  private  companies  are  the 
owners  of  the  telegraph  lines,  whereas  in  others,  for  example,  in 
Germany,  the  State  works  most  of  the  railways  and  some  factories 
to  boot.  Again,  municipal  authorities  often  take  charge  of  the 
gas  and  water  supply. 

It  has  been  recently  proposed  that  the  State  should  assume  the 
control  of  a  commercial  enterprise  which  should  yield  at  least 
^40,000,000  a  year,  namely,  the  sale  of  brandy.  This  scheme 
was  suggested  by  M.  Alglave,  professor  of  Financial  Science  in 
Paris,  but  it  has  not  been  tried  in  France  because  the  owners  of 
small  vineyards  cannot  be  prevented  from  making  brandy  for 
themselves.  However,  other  governments  have  embarked  more 
or  less  deeply  in  similar  enterprises. 

We  have  now  to  ask  whether  this  class  of  revenue,  like  the 
revenue  derived  from  State  lands,  frees  the  taxpayer  from  all 
burdens.  Our  answer  must  be  a  twofold  one.  If  this  industry 
in  question  is  conducted  under  /;re  competition,  and  the  profits 
made  by  the  State  are  no  higher  than  those  that  could  be 
obtained  by  any  private  firm,  then  indeed  no  tax  is  really  levied. 
But  if  the  particular  industry  is  managed  under  a  system  of 
monopoly,  i.e.  if  the  government  prohibits  all  competition  by 
private  persons  and  makes  use  of  its  position  to  sell  the  article 
for  a  far  higher  price  than  the  cost-price,  then  the  additional  price 


APPENDIX.  563 

that  tha  consumer  has  to  pay  is  clearly  a  tax  ii.  disguise ;  but  the 
fact  that  it  is  disguised  prevents  the  consumer  from  perceiving 
it.  Now,  most  of  the  industries  carried  on  by  the  French  govern- 
ment, or  at  any  rate  the  most  important  of  them  (tobacco,  powder, 
post-office,  .and  telegraphs),  are  worked  under  this  monopolist 
system. 

Section  3.    Indirect  Taxes. 

Since  the  income  that  modern  governments  derive  from  the 
State  lands  and  industries  is  far  from  sufficing  requirements, 
further  sources  of  revenue  must  be  sought  for.  The  laying  of  a 
duty  on  certain  commodities  was  long  ago  found  to  be  an  impor- 
tant mode  of  obtaining  revenue.  This  is  certainly  a  tax,  for  the 
consumer  will  have  to  pay  it  in  the  shape  of  enhanced  price,  but  it 
possesses  two  advantages.  In  the  first  place  it  is  disguised  in  the 
very  price  of  the  article,  and  thus  escapes  the  consumer's  notice ; 
there  are  few  people  who  on  buying  sugar  at  so  much  the  pound 
can  tell  what  portion  of  the  price  constitutes  the  tax.  Secondly, 
the  tax  is  in  a  manner  optional,  for  it  is  only  paid  on  purchase  of  the 
article  on  which  it  is  levied,  and  every  one  is  free  either  to  abstain 
from  buying  it  or  to  purchase  it  in  whatever  quantity  he  wishes. 

Under  the  same  heading  must  fall  customs  duties  which, 
legally  speaking,  do  not  differ  from  indirect  taxes.  Further,  they 
appear  to  have  the  special  advantage  of  causing  payment  of  the 
tax  to  fall  not  on  the  citizens  of  the  country,  but  on  foreigners. 
That,  if  true,  would  be  an  ideal  form  of  taxation,  but  as  we  have 
previously  seen,  the  ideal  in  this  case  is  not  the  real.  Including 
customs  duties,  the  indirect  taxes  in  the  French  budget  for  1884 
amounted  to  rather  over  ;;^40,ooo,ooo,  or  1,074,000,000  francs, 
more  than  a  third  of  the  budget.  The  returns  from  the  principal 
French  indirect  taxes  are  shown  in  the  subjoined  table :  — 

Wines,  spirits,  and  other  beverages  (1886) 439,000,000  f. 

Sugar  (home  grown  and  colonial)  (1SS6) 138,000,000  f. 

Salt  (1886) 32,000,000  f. 

Coffee  (1885) 107,000,000  f. 

Petroleum  and  schist  (1885) 27,000,000  f. 

Conveyance  of  passengers  and  goods  by  express  trains  (18S6)  92,000,000  f. 


564  TRINCIPLES    OF    POLITICAL    ECONOMY. 

Section  4.    Taxes  on  Legal  Documents  and  Various  Incidents  of 
Daily  Life. 

There  is  a  limit  to  the  number  of  the  commodities  on  which  a 
duty  can  be  imposed ;  for  they  require  to  be  at  one  and  the  same 
time  articles  which  are  consumed  in  large  quantities,  so  that  the 
tax  shall  have  some  scope,  and  not  to  be  indispensable  to  exist- 
ence, for  that  would  give  a  harsh  character  to  the  tax.  Instead, 
therefore,  of  burdening  commodities,  financiers  have  resorted  to 
the  plan  of  taxing  certain  legal  processes  incidental  to  life,  —  such 
as  successions,  receipts,  lawsuits,  conveyance,  etc.,  —  by  means  of 
registration  duties  and  stamp  duties.  From  the  governmental 
point  of  view  these  taxes  have  the  further  advantage  of  affecting 
the  taxpayer  only  indirectly,  or,  at  any  rate,  at  the  moment  when 
he  feels  them  least.  The  man  who  receives  an  inheritance,  par- 
ticularly if  it  is  a  windflillj  can  very  well  bear  to  give  up  a  portion 
of  it  to  the  State.  The  man  who  buys  an  estate  is  previously 
aware  of  the  amount  of  succession  duty  that  he  will  have  to  pay, 
and  regulates  accordingly  the  price  he  has  to  give. 

The  penny  stamp,  which  is  the  equivalent  of  the  stamp  required 
in  France  for  every  receipt  above  ?>/6,  does  not  inconvenience 
the  buyer,  because  the  trader  usually  pays  it ;  nor  the  shopkeeper, 
because  he  raises  his  price  in  proportion.  From  an  economic 
point  of  view,  however,  such  duties,  especially  succession  duties, 
are  seriously  inconvenient.  In  the  French  budget  for  1886  they 
amounted  to  over  ^27,000,000,  or  682,000,000  francs,  more  than 
a  fifth  of  the  budget. 

Section  5.    Direct  Taxes. 

The  sources  of  public  revenue  we  have  now  studied  are  not 
fertile  enough  to  meet  all  expenses.  After  all,  then,  we  are  com- 
pelled to  touch  the  taxpayer  directly  by  a  personal  and  specific 
tax.  Disguise  is  no  longer  possible ;  the  government  demands 
from  each  taxpayer  a  particular  sum  ;  and,  if  he  refuses  to  pay,  the 


APPENDIX.  565 

ordinary  methods  of  legal  execution,  i.e.  distraint,  are  employed 
against  him.  Thus,  of  all  classes  of  taxes  this  is  the  most  burden- 
some and  vexatious  ;  and  governments  which  have  reason  to  fear 
the  effects  of  unpopularity  avoid  this  method  of  obtaining  money 
as  long  as  they  possibly  can.  For  example,  after  the  war  of  1870, 
France  required  to  raise  an  additional  sum  of  ;j^28,ooo,ooo  a 
year ;  and  almost  the  whole  of  this  amount  was  levied  by  means 
of  indirect  taxation. 

But  everytliing  now  points  to  a  radical  change  in  men's  opinions  ; 
and,  curiously  enough,  it  is  the  very  desire  for  popularity  that 
induces  present-day  governments  to  reduce  indirect  taxes,  and  to 
seek  to  obtain  the  greater  part,  or,  if  need  be,  the  whole,  of  the 
public  revenue  from  direct  taxation.  We  must  explain  this  singu- 
lar change  of  tack. 

The  object,  nowadays,  is  not  so  much  to  find  the  most  produc- 
tive or  the  least  harassing  tax,  as  to  light  upon  the  one  which  is 
most  in  conformity  with  justice.  Nay  !  there  is  even  an  exces- 
sive tendency  to  regard  taxation  less  as  a  means  of  furnishing 
the  government  with  its  necessary  supplies,  than  as  a  mode  of 
setting  right  the  unjust  distribution  of  wealth.  In  fact,  the  fis- 
cal standpoint  is  being  abandoned  for  a  social  standpoint ;  and 
viewed  in  that  light  direct  taxation  is  incontestably  superior 
to  any  other  form.  As  a  matter  of  fact,  in  virtue  of  its  personal 
character,  it  is  the  only  mode  of  levying  money  which  allows  of 
the  apportioning  of  the  imposed  burdens  to  the  fortunes  of  those 
on  whom  the  tax  falls,  and  which  enables  the  financier  to  cause 
the  rich  to  pay  more  than  the  poor.  No  doubt,  even  with  indirect 
taxes,  the  rich  man  will  have  to  bear  a  heavier  burden  than  the 
poor  man,  simply  because  he  consumes  more  of  the  taxed  article ; 
but  the  man  who  has  an  income  of  ^400  a  year  does  not  consume 
a  hundred  times  more  salt,  nor  even  a  hundred  times  more  salt  or 
sugar  or  wine,  than  the  workingman  who  earns  £,£^0  a  year,  espe- 
cially if  the  latter  has  a  numerous  family.  Of  course,  the  wealthy 
man  may  spctid  a  hundred  times  more  money  on  wine,  from  the 
fact  that  he  drinks  better  wine ;  but  our  words  were,  consumes 


566  PRINCIPLES    OF    POLITICAL    ECONOMY, 

more.  Now,  duties  are  proportional,  not  to  the  value  of  the 
articles  consumed,  but  only  to  the  quantity.  There  is  just  the 
same  duty  on  Chateau-Lafitte  as  there  is  on  public-house  wine  ; 
and,  howev-er  unjust  this  equality  may  seem  to  be,  there  is  no 
practical  way  of  rectifying  it,  unless,  indeed,  the  comptrollers  of 
indirect  taxes  are  to  taste  each  sample  of  wine  before  they  tax  it. 

Further,  from  a  moral  and  political  point  of  view,  the  personal 
and  disagreeable  nature  of  this  tax  is  an  advantage  ;  for  it  is  right, 
nay,  it  is  indispensable,  that  every  citizen  of  a  free  country  should 
be  compelled  to  feel  directly,  and  in  a  manner  which  he  cannot 
disregard,  the  consequences  and  results  of  all  expenditures  made 
by  the  government,  i.e.  by  his  chosen  representatives.  That  is  the 
soundest  system  of  political  education. 

The  most  natural  form  of  direct  taxation  is  a  tax  laid  in  pro- 
portion to  a  man's  income.  If  each  citizen's  income  could  be 
calculated  exactly,  a  simple  sum  in  arithmetic  would  show  the 
percentage  that  ought  to  be  levied  on  that  income  in  order  to 
provide  for  the  public  expenses ;  and  then  we  might  seem  to  have 
a  fiscal  system  of  perfect  simplicity  and  irreproachable  justice. 

But  this  principle  is  far  from  receiving  universal  approval,  and 
is  disputed  by  two  sets  of  opponents. 

The  first  class  declares  that  the  tax  should  be  laid  not  on 
income,  but  on  capital.  We  may  accept  that  statement  for  a  few 
articles  of  wealth  which  yield  no  income,  —  such  as  country  man- 
sions, picture-galleries,  diamonds,  etc.,  —  though  these  are  not 
of  great  importance.  But  the  notion  is  altogether  illogical  when 
applied  to  wealth  in  general ;  for,  in  the  case  of  most  classes  of 
wealth,  the  value  of  the  capital  is  determined  only  by  the  amount 
of  the  income.  It  would,  therefore,  be  much  simpler  to  tax  in- 
comes directly.  It  has  been  urged  that  capital,  which  is  wealth 
already  formed,  should  be  taxed  in  preference  to  an  income  which 
is  wealth  in  process  of  formation.  In  our  opinion,  however,  it 
would  be  radically  unjust  to  exempt  from  taxation  the  gains  which 
are  made  by  a  barrister  or  an  opera-singer,  even  when  they  cease 
to  possess  any  capital.     Moreover,  the  valid  points  in  this  criticism 


APPENDIX.  567 

could  be  easily  met  by  taxing  incomes  derived  from  capital  at  a 
higher  rate  than  incomes  proceeding  from  labor. 

The  other  class  of  opponents  demands  that  the  tax  shall  be 
progressive,  and  not  proportional ;  in  other  words,  not  only  the 
amount  of  the  tax,  but  also  the  proportion  of  the  tax,  ought  to 
vary  according  to  respective  fortunes.  If,  say,  the  proportion  is 
5  per  cent  on  an  income  of  ;j^40o,  it  should  be  lowered  to  i  per 
cent  on  an  income  of  ;Q\o,  and  be  raised  to  25  per  cent  on 
Jp^^ooo.  The  reason  assigned  is,  that  the  privation  that  every  tax 
causes  the  taxpayer  to  suffer  is  far  greater  for  the  poor  man  than  for 
the  rich  man.  For  the  man  of  means  who  has  ^4000  a  year,  a 
tax  of  10  per  cent,  or  a  deduction  of  ^400,  falls  only  on  that  por- 
tion of  his  wealth  which  is  over  and  above  the  bare  requirements 
of  sustenance  ;  but  those  very  means  of  subsistence  are  drawn 
upon  when  a  tax  of  10  per  cent,  or  ;^4,  is  levied  on  the  man  whose 
income  is  a  mere  ^40.  The  observation  is  true  enough,  and  may 
be  confirmed  by  the  fact  that,  usually  speaking,  social  and  collec- 
tive causes  contribute  more  largely  to  the  formation  of  large  than 
of  small  fortunes ;  the  former,  therefore,  may  be  called  upon  to 
pay  society  more  than  the  latter  do ;  in  fact,  it  is  a  species  of 
debt  which  they  have  to  redeem.  No  objection  of  principle  can 
be  urged  against  progressive  taxation,  if  its  only  aim  is  to  estab- 
lish a  proportionality  which  is  more  accurate  than  a  purely  arith- 
metical one ;  moreover,  it  is  already  in  force  in  some  of  the  Swiss 
cantons.  But  the  plan  cannot  be  approved  if,  as  the  socialists  pro- 
pose, it  is  to  be  used  as  a  levelling  instrument  by  means  of  which 
the  wealthy  classes  are  to  be  crushed  with  taxation,  and  the  classes 
who  live  on  their  own  labor  completely  freed  from  all  burdens. 
We  ought  not  to  aim  at  an  equalization  of  men's  lots ;  the  sys- 
tematic cutting  down  of  all  fortunes  which  exceed  an  arbitrarily 
fixed  limit  would  simultaneously  maim  all  productive  activity ; 
and  to  relieve  the  wages-earning  classes  of  all  share  in  expendi- 
ture arising  from  the  conduct  of  public  affairs  would  have  deplor- 
able political  results.  For  under  a  system  of  universal  suffrage 
it  is  these  very  classes  that  really  govern ;  and  the  first  principle 


568  PRINCIPLES    OF    POLITICAL    ECONOMY. 

of  government  is,  that  those  who  govern  should  bear  the  responsi- 
bility of  their  acts. 

Moreover,  there  are  further  difficulties  as  to  the  application  of 
a  general  tax  on  income.  It  is  extremely  hard  to  tell  precisely 
what  a  man's  income  is ;  if  we  are  to  abide  by  the  declarations 
made  by  the  taxpayers,  there  are  strong  reasons  for  thinking  that 
the  honest  will  have  to  pay  for  the  dishonest,  a  result  that  would 
be  scarcely  conformable  to  our  idea  of  justice ;  if  inquiries  are  to 
be  made  as  to  individual  fortunes,  the  measures  necessary  for  such 
an  investigation  of  the  secrets  of  private  life  would  be  exceedingly 
harassing,  and  might  prove  to  be  odiously  tyrannical.  Further,  if 
the  State  wishes  to  draw  all  its  revenue  from  an  income  tax,  it  will 
have  to  take  a  large  share  of  each  man's  fortune.  Let  us  sup- 
pose that  the  collected  incomes  of  all  Frenchmen  amount  to 
;^i, 000,000,000  :  in  that  case,  in  order  to  obtain  the  ^160,000,000 
they  require,  the  government  and  the  communes  would  have  to 
put  a  tax  of  16  per  cent  on  every  man's  income,  —  in  other  words, 
deduct  rather  more  than  a  sixth  part.  But  such  a  levy  of  ^16 
out  of  every  hundred  would  be  literally  crushing  to  the  man  of 
moderate  means.  If,  as  is  probable,  the  poor,  and  perhaps  also 
the  working  classes,  were  exempted  from  the  tax,  the  share  that 
the  well-to-do  classes  would  have  to  pay  would  be  three  or  four 
times  higher  than  the  above-mentioned  figure. 

Notwithstanding  these  difficulties  of  application,  the  income  tax 
is  the  ideal  mode  of  taxation  which  we  should  strive  to  reach  ;  it 
would  be  premature  to  require  that  tax  to  supply  the  whole  of  the 
public  revenue,  but  it  should  contribute  a  large  and  ever-increas- 
ing share  as  compared  with  the  other  resources  of  the  treasury. 
Its  partial  application  would  gradually  overcome  the  difficulties 
we  have  referred  to.  The. tax  is  already  in  operation  and  works 
well  enough  in  a  large  number  of  countries,  especially  in  England, 
in  Germany,  m  Switzerland,  and  in  Italy. 

In  France  there  is  no  one  general  income  tax,  though  that  may 
come  soon,  but  there  are  sr7'en7/ taxes  which  are  laid  only  on  certain 
specified  sources  of  income.    We  will  state  the  five  principal  ones. 


APPENDIX.  569 

First.  The  latid  tax,  which  is  levied  on  the  income  yielded  by 
all  landed  property,  whether  built  on  or  not;  this  was  fixed 
according  to  a  general  survey  of  all  the  lands  in  France,  which 
took  forty  years  to  make  and  would  now  need  to  be  done  all  over 
again. 

Second.  The  door  and  zuindoiv  tax,  which  falls  especially  upon 
houses.  Its  curious  name  arises  from  the  fact  that  the  value  of 
the  houses  is  calculated  according  to  the  number  of  openings  in 
them,  though  other  matters  are  included  in  the  estimate.  After  a 
laborious  statistical  valuation  this  tax  is  to  be  recast. 

Third.  A  tax  on  persoiial  and  movable  property.  It  is  this 
that  most  closely  resembles  a  general  income  tax,  for  it  is  levied 
on  the  general  income  of  the  taxpayer ;  but,  instead  of  being  cal- 
culated directly  on  incomes,  it  is  rated  according  to  the  house- 
rent  paid,  or  according  to  the  letting-value  for  those  who  live  in 
their  own  houses.  Besides  the  general  tax  on  incomes,  the  personal 
property  tax  includes  a  poll  tax  (ranging  between  \s.  and  45'. 
per  head),  which  falls  on  every  French  citizen  without  regard  to 
proportionality.  But  the  smallness  of  the  sum  minimizes  its  irk- 
someness. 

Fourth.  A  tax  on  trade  licenses,  which  affects  all  persons  en- 
gaged in  manufacture  or  trade  of  any  sort.  This  again  differs 
from  an  actual  income  tax  by  being  estimated  not  on  the  profits 
of  the  business,  but  on  rather  complex  factors  ;  e.g.  the  nature  of 
the  industry,  the  population  of  the  town,  the  value  of  the  premises, 
etc. 

Fifth.  A  tax  on  stocks.  This  is  of  quite  recent  date,  being 
first  imposed  after  the  war  of  1870.  It  is  laid  on  the  returns 
given  by  all  stock  save  government  securities  ;  that  is  to  say,  all 
shares  and  debentures  quoted  on  the  Bourse.  The  tax  is  four  per 
cent  on  shares  assigned  to  specified  parties,  and  double  that 
amount  when  they  are  payable  to  bearer. 

By  adding  to  these  five  direct  taxes  some  others  of  less  impor- 
tance (such  as  those  on  horses  and  on  carriages),  we  come  to  a 
total  of  some  ;^20,ooo,ooo. 


570  PRINCIPLES    OF    POLITICAL   ECONOMY. 

We  must  make  a  few  remarks  on  the  foregoing.  Taxes  may  be 
divided  into  direct  taxes  at  a  proportional  rate  {impots  de  reparti- 
tion') when  the  amount  to  be  collected  is  fixed  in  advance  by  law 
and  is  then  divided  up  amongst  the  taxpayers,  and  taxes  at  a 
fixed  rate  {impots  de  quotitc)  when  each  man's  share  is  fixed  by 
local  commissions,  but  the  total  has  no  limit  assigned.  Our  first 
three  direct  taxes  are  of  the  proportional  kind ;  the  tax  on  trade 
licenses  is  at  a  fixed  rate.  It  is  clear  that  taxes  which  are  rated 
on  each  individual  citizen  are  far  more  elastic  than  taxes  at  a  pro- 
portional rate,  which  are  almost  invariable  in  their  returns.  In  the 
budget  the  tax  on  stocks  comes  under  the  head  of  indirect  taxa- 
tion, for  it  is  not  levied  on  specified  individuals ;  it  falls  on  the 
stock  itself  and  not  on  the  capitalist  who  holds  it. 

In  the  above  we  have  confined  ourselves  to  the  public  revenue 
of  the  State.  But  the  revenue  of  the  various  communes  and 
departments  is  also  of  great  importance  and  reaches  the  sum  of 
^36,000,000,  though  sometimes  State  and  local  receipts  are 
devoted  to  the  same  purpose.  The  principal  sources  of  this 
local  revenue  are  the  octrois  (or  city  tolls),  which  yield  more  than 
;;^i  1,000,000  (half  of  which  is  for  Paris  alone)  and  the  "extra 
pence,"  {^centimes  additionnels)  which  give  more  than  ;^  14, 000, 000. 
This  latter  levy  is  a  percentage  which  is  added  to  the  principal  of 
the  four  direct  taxes,  and  is  collected  at  the  same  time  as  they  are. 
The  octrois  need  no  explanation ;  latterly  they  have  been  sharply 
attacked  by  similar  arguments  to  those  which  have  been  urged 
against  indirect  taxes. 

III.    The  Public  Debt. 

If  most  modern  governments  are  unable  to  meet  their  ordinary 
expenses,  for  a  stronger  reason,  still  less  are  they  able  to  supply 
the  requisite  funds  for  an  extraordinary  expenditure,  say,  for  a 
war,  or  for  large  public  works.  Often,  then,  they  are  obliged  to 
follow  the  example  of  all  persons  who  live  above  their  means,  i.e. 
they  run  into  debt.     Hence  the  origin  of  public  debts.     There  is 


APPENDIX.  571 

not  a  single  civilized  country  which  has  not  a  debt  of  some  size  or 
other;  and  for  a  barbarous  nation  to  contract  such  liabilities  is 
the  usual  proof  that,  to  use  the  diplomatic  phrase,  it  has  entered 
the  concert  of  European  peoples.  In  fact,  pubHc  debts  have 
constantly  increased  in  a  greater  and  more  startling  degree  than 
public  expenses.  A  century  ago  the  total  was  practically  insignifi- 
cant ;  the  amount  for  the  whole  world  is  now  reckoned  to  be 
;^6,ooo,ooo,ooo.  Among  all  debt-owing  countries  France  holds 
the  bad  pre-eminence,  for  its  debt  is  more  than  ;^i, 200,000,000; 
and  next  to  it  come  England  and  Russia. 

There  are  certain  exceptions  to  this  ;  for  instance,  the  enormous 
development  in  population  and  wealth  of  the  United  States,  and 
their  almost  complete  exemption  from  military  expenditure,  have 
overfilled  their  budgets  with  large  surpluses,  which  they  do  not 
know  how  to  dispose  of. 

In  spite  of  the  apparent  ease  of  the  task,  it  is  somewhat  difficult 
exactly  to  calculate  the  capital  of  the  French  public  debt.  The 
registered  debt  {rentes  insc rites)  is  divided  into  435,000,000 
francs'  worth  of  3  per  cent  stock,  which  at  that  rate  stand  for  a 
nominal  capital  of  14,500,000,000  francs ;  305,000,000  francs  of 
4^ /<fr  r^w/y,  representing  a  capital  of  6,788,000,000  francs ;  and 
1 18,000,000  francs  of  redeeinable  3  per  cents,  representing  a  capital 
of  3,937,000,000  francs.  Thus  the  total  comes  to  858,000,000 
francs  of  stock,  or  a  capital  of  rather  over  25  milliards ;  in  other 
words,  a  little  more  than  ^^i, 000,000,000  sterling.  This  is  the  sum 
that  the  State  acknowledges  it  owes ;  it  is  entered  on  the  stock 
certificates,  and  would  have  to  be  paid,  if  ever  the  government 
wished  to  refund  the  capital,  which,  we  shall  see,  it  is  not  bound 
to  do.  However,  the  government  has  by  no  means  received  or 
spent  the  whole  of  this  money ;  for  it  has  the  curious  habit  (which 
we  shall  presently  explain)  of  always  borrowing  below  par,  i.e.  it 
asks  for  a  far  smaller  amount  than  that  for  which  it  confesses 
itself  to  be  a  debtor. 

To  these  858,000,000  francs  of  actual  stock  we  must  add  rather 
more  than  200,000,000  francs  of  interest,  which  represent  repay- 


572  PRINCIPLES    OF    POLITICAL    ECONOMY. 

able  capital  in  the  shape  of  treasury  bills,  floating  debt,  funds 
deposited  by  savings  banks,  and  securities  deposited  by  officials  in 
charge  of  public  moneys.  This  capital  is  even  more  difficult  to 
estimate  than  the  above ;  for  the  interest  includes  the  repayment 
of  such  capital  under  the  form  of  redemption.  If  we  reckon  this 
capital  to  be  rather  less  than  ^200,000,000,  the  entire  debt  would 
be  30  milliards  of  francs,  or  ^1,200,000,000  sterling.  The  total 
reached  by  M.  Leroy-Beaulieu  is  something  like  ;^i 00,000,000 
more,  but  he  capitalizes  the  arrears  on  civil  and  army  pensions ; 
yet  it  would  be  quite  as  reasonable  to  capitalize  all  government 
salaries,  and  add  that  capital  to  the  public  debt. 

However  enormous  these  figures  may  seem  (and  we  should  be 
the  last  to  dispute  their  verity),  we  must  remark  that  the  total 
income  of  France  is  calculated  to  be  about  ;!^i, 000,000,000,  and 
its  entire  wealth  ;^8,ooo,ooo,ooo.  If  a  private  person,  say  a 
manufacturer,  earns  ^1000  a  year,  and  possesses  a  capital  of 
;^8ooo,  we  should  not  think  his  position  at  all  desperate,  or  even 
serious,  if  he  contracted  debts  to  the  tune  of  ;^i20o. 

We  must  now  study  the  origin  of  these  public  debts  and  the  way 
in  which  they  are  wiped  out. 

Section  i.    Public  Loans. 

When  a  government  is  in  need  of  money,  it  behaves  like  any 
private  person ;  it  applies  to  capitalists  in  order  to  borrow  from 
them  the  requisite  sum,  and  promises  them  a  certain  interest  in 
return.  But  three  characteristic  differences  distinguish  public 
loans  from  those  effected  by  private  individuals. 

Firstly.  The  State,  in  common  with  municipalities,  large  com- 
panies, and  all  institutions  which  have  recourse  to  public  loans, 
does  not  bargain  with  any  capitalist  as  to  the  sum  it  requires  and 
the  interest  it  ought  to  pay.  It  offers  for  sale  stock,  which  bear  a 
specified  interest  and  are  to  be  obtained  at  a  price  which  it  fixes 
beforehand.  It  is  clear  that  this  must  harmonize  with  the  actual 
rate  of  interest  in  the  market  for  capital ;  for,  otherwise,  no  buyers 


APPENDIX.  573 

would  be  forthcoming.  Say  the  government  needs  ;^40,ooo; 
then  it  issues  stock  at  5  per  cent  interest,  and  fixes  their  price 
according  to  the  state  of  its  own  credit  and  its  hopes  of  the  more 
or  less  ready  answer  of  capitalists  to  its  appeal. 

Secondly.  The  State  usually  borrows  by  means  of  irredeonable 
stock,  or  "  perpetual  "  loans  ;  i.e.  the  capital  of  the  debt  is  never 
payable  on  demand,  and  the  State  reserves  to  itself  the  right  of 
non-payment  if  that  course  seems  fitting.  At  first  thoughts  we 
might  be  inclined  to  be  surprised  that  lenders  would  accept  such 
a  clause ;  but  a  little  reflection  shows  that  capitalists  who  lend  to 
a  government  do  so  not  for  the  purpose  of  having  their  money 
repaid,  but  for  the  purpose  of  investment ;  in  other  words,  in 
order  to  obtain  a  secure  income.  A  certificate  of  irredeemable 
stock  perfectly  fulfils  such  a  condition  ;  and,  if  at  any  given  moment 
the  capitalist  wishes  to  get  his  money  back,  his  course  is  simple 
enough  :  he  has  but  to  sell  his  stock  on  the  Bourse. 

Thirdly.  The  State  generally  borrows  bcloiv  par,  i.e.  it  acknowl- 
edges itself  to  owe  a  larger  sum  than  it  has  actually  received. 
Take  a  government  which  could  easily  borrow  at  5  per  cent ;  it 
might  therefore  issue  lOO-franc  stock  bearing  an  interest  of  5 
francs  per  cent,  and  offer  them  for  sale  at  100  francs,  i.e.  at  par. 
That  would  be  the  easiest  way ;  but  the  French  government  usu- 
ally proceeds  in  another  fashion.  It  prefers  to  issue  loo-franc 
certificates  of  stock  yielding  an  interest  of  only  3  per  cent ;  but  it 
will  never  dream  of  trying  to  sell  such  certificates  for  100  francs, 
i.e.  at  par ;  for  no  lender  would  come  forward  under  those  condi- 
tions. No  ;  it  offers  the  stock  for  60  francs,  which  is  just  the  same 
to  the  lenders  as  the  previous  operation ;  for  3  francs'  interest  on 
60  francs  is  an  investment  at  5  per  cent.  In  fact,  this  plan  will 
be  even  better  for  the  lender ;  though  he  pays  only  60  francs,  he 
receives  in  exchange  a  security  of  the  nominal  value  of  100  francs  ; 
and  the  real  value  of  this  stock  may  reach  or  approach  the  nomi- 
nal figure,  if  the  credit  of  the  government  is  strengthened.  Thus, 
the  English  3  per  cents  have  sometimes  been  quoted  at  par,  or 
even  at  a  small  premium. 


574  PRINCIPLES    OF    POLITICAL   ECONOMY. 

But  the  method  is  certainly  difficult  to  explain  from  the  point 
of  view  of  the  State ;  for  it  is  not  only  wonderfully  complex,  but 
it  closely  resembles  the  loans  made  to  young  men  of  family  by 
money-lenders,  when  the  total  sum  received  is  not  more  than  half 
or  three-fourths  of  the  nominal  amount.  Still,  as  in  virtue  of  the 
qualifying  clause  referred  to  above,  the  government  is  not  bound 
to  repay  the  money,  it  is  of  little  consequence  whether  it  is  exag- 
gerated or  not.  The  point  of  importance  is  that  the  interest  shall 
be  as  low  as  possible.  In  fact,  its  advantages  with  regard  to  in- 
terest are  the  only  excuse  for  this  method  of  doing  business ;  for 
it  is  probable  that  the  lender  may  be  less  severe  as  to  the  condi- 
tions of  the  loan  if  he  anticipates  that  his  stock  will  rise  in  value. 
Thus,  he  might  be  willing  to  pay  80  or  85  francs  (instead  of  60) 
for  this  3  francs  per  cent  stock,  which  would  come  to  not  more 
than  3^  per  cent  interest. 

Still,  whatever  arguments  may  be  urged  for  it,  this  plan  of 
negotiating  loans  should  be  altogether  condemned  on  principle ; 
for  it  renders  all  future  repayment  of  the  debt  either  impossible  or 
ruinous  for  the  State,  and  thus  practically  prevents  any  method  of 
conversion. 

Passing  from  the  differences  between  public  and  private  loans, 
we  must  observe  that  the  State  has  the  choice  of  three  modes  of 
issuing  its  stock. 

JF'irsf.  It  may  deal  directly  with  influential  banking  houses,  and 
obtain  from  them  the  necessary  money  at  a  fixed  price.  This  is 
the  simplest,  and  was  formerly  the  almost  universal,  method. 

Second.  It  may  appeal  directly  to  the  public  by  throwing  open 
a  public  subscription  through  the  whole  country  on  an  appointed 
day.  This  has  been  the  usual  plan  adopted  in  France  since  the 
Second  Empire,  and  it  possesses  certain  advantages.  The  extent 
of  the  market  thus  afforded  makes  it  easier  to  negotiate  loans  for 
large  sums,  such  as  the  successive  loans  for  2  and  then  for  3 
milliards  of  francs  which  were  required  for  the  payment  of  the 
war  indemnity  to  Germany.  The  loan  is  "  classed  "  immediately  ; 
in  other  words,  the  stock  certificates  go  straight  into  the  posses- 


APPENDIX.  575 

sion  of  the  persons  who  are  to  hold  them ;  whereas  bankers  are 
middlemen,  who  take  the  stock  merely  to  sell  them  again  at  a 
profit.  Finally,  when  loans  are  thus  publicly  issued,  they  are  made 
to  fulfil  the  somewhat  theatrical  purpose  of  manifestations  of  popu- 
lar opinion  and  patriotic  feeling.  Thus,  the  prestige  of  the  French 
government  and  the  credit  of  the  State  were  greatly  raised  by  the 
fact  that  the  loan  issued  after  the  Franco-German  war  was  sub- 
scribed for  forty  times  over.  The  disadvantage  of  the  method  is 
that  in  order  to  achieve  startling  success  from  the  political  point 
of  view,  the  State  usually  offers  terms  which  are  too  favorable  to  the 
lenders,  and  consequently  harmful  to  itself. 

Third.  The  stock  may  be  sold  directly  on  the  Bourse,  day  by 
day,  and  according  to  requirement.  This  was  done  some  years 
ago  with  the  loans  which  were  intended  to  meet  the  expenses  of 
the  great  public  works  in  France.  From  a  political  aspect  this 
proceeding  errs  by  being  partly  secret,  and  the  country  is  not 
made  aware  of  the  expenditure  in  which  it  is  being  involved. 
The  public  does  not  suspect  it ;  hence  the  fondness  which  the 
government  shows  for  this  method  on  certain  occasions. 

Section  2.    On  the  Extinction  of  Public  Debt. 

According  to  Jefferson,  the  American  statesman,  one  generation 
should  only  have  the  power  of  contracting  a  debt  provided  that  it 
repays  it  during  its  own  lifetime,  i.e.  within  thirty  or  forty  years. 
The  saying  is  an  admirable  one ;  for  it  is  overwhelmingly  unjust 
that  one  generation  should  be  able  to  burden  all  generations  to 
come  with  the  consequences  of  its  own  folly. 

Hence,  a  wise  government  should  always  borrow  by  means  of 
redeemable  stock  j  it  should  undertake  to  repay  the  whole  of  the 
capital  borrowed  within  a  period  approximate  to  that  just  suggested, 
or  at  any  rate  within  a  century,  at  the  very  outside.  If  the  period 
is  long  enough,  a  very  small  redemption  premium  (say  \  per  cent 
of  the  capital,  or  even  less)  will  be  sufficient  entirely  to  repay  the 
whole  capital,  so  wonderful  is  the  power  of  compound  interest. 


576  PRINCIPLES    OF    POLITICAL    ECONOMY. 

Thus,  the  rec^emption  charge  does  not  add  very  much  to  the 
charges  due  to  interest,  and  the  priceless  advantage  is  obtained 
of  the  future  being  left  unshackled.  On  this  plan  a  certain 
number  of  certificates  of  stock,  which  arc  drawn  by  lot,  are  repaid 
yearly.  This  number  is  very  small  at  first,  but  is  allowed  to 
increase  according  as  the  diminution  of  the  capital  and  the  con- 
sequent diminution  of  the  interest  allow  of  the  disposal  of  larger 
sums. 

Unfortunately,  most  governments,  with  France  as  the  arch- 
offender,  practise  the  deplorable  custom  of  borrowing  by  means 
of  irredeemable  stock.  In  fact,  the  French  public  are  now  so  used 
to  the  habit,  that  the  attempt  made  some  years  ago  to  introduce 
redeemable  funds  failed  to  succeed,  and  had  to  be  abandoned. 
It  is  somewhat  exasperating  to  note  that  France,  the  very  State 
which  arrogates  to  itself  the  right  of  borrowing  by  means  of  irre- 
deemable stock,  refuses  to  allow  the  district  communes  and  the 
departments  to  resort  to  such  measures,  its  plea  being  the  interests 
of  the  future  !  In  fact,  the  French  departments  and  municipalities 
can  only  borrow  by  means  of  debentures  which  have  to  be  re- 
deemed within  a  period  named  by  the  law  authorizing  the  loan ; 
in  other  words,  they  have  expressly  to  undertake  to  repay  the 
loan,  gradually,  by  means  of  annuities,  within  the  space  of  twenty, 
thirty,  or  forty  years. 

Even  if  a  government  is  accustomed  to  borrow  by  irredeem- 
able stock,  none  the  less  it  can,  and  ought  to,  strive  to  extinguish 
its  debt,  or,  at  any  rate,  reduce  it  by  degrees.  It  can  do  this  by 
two  ways  :  it  can  reduce  the  capital  of  the  debt,  which  is  called 
redemption  ;  or  it  can  reduce  the  interest  on  the  debt,  which  is 
called  conversion.  Before  we  speak  of  these,  we  must  mention  a 
third  method  which  is  sometimes  spoken  of,  i.e.  consolidation. 

Consolidation  does  not  by  any  nneans  reduce  the  national  debt ; 
it  merely  transforms  a  debt  which  is  payable  at  short  notice  into  a 
debt  which  takes  ;he  shape  of  irredeemable  stock,  the  capital  of 
which,  therefore,  is  never  payable  on  demand.  Presides  the  loans 
which  it  obtains  by  issuing  irredeemable  stock,  a  method  it  em- 


APPENDIX.  577 

ploys  only  on  important  occasions,  the  State  constantly  meets  its 
current  expenses  by  small  loans  in  the  form  of  treasury  bills, 
which  are  notes  payable  within  four  or  five  years.  These  bills, 
and  other  liabilities  of  a  similar  nature,  constitute  what  is  called 
\}i\Q.  floating  debt ;  and  this  sometimes  grows  so  large  that  when  the 
bills  fall  due  the  government  may  find  it  awkward  to  meet  its 
engagements.  Now,  when  the  State  turns  this  floating  debt  into 
a  consolidated  debt,  the  process  is  termed  consolidation.  It  is  a 
financial  expedient  which  is  sometimes  necessary,  but  none  the 
less  it  is  a  sorry  method. 

To  turn  to  redcmptiofi;  the  term  itself  is  not  a  happy  one,  for 
redemption  implies  a  repayment  of  the  debt.  But  the  operation 
now  under  notice  is  effected  merely  by  buying  on  the  Bourse  (or 
Exchange),  at  the  current  rate,  as  large  a  quantity  of  stock  as 
the  authorities  propose  to  redeem  ;  the  stock  certificates  are  then 
destroyed,  being  thrown  into  the  fire,  or  else  cancelled. 

The  old  method  was  far  more  complicated.  The  sum  that  was 
to  be  applied  for  redemption  in  each  successive  year  was  paid 
into  a  special  office  called  the  redemption  (or  Sinking  Fund) 
office.  These  moneys  were  certainly  employed  in  the  purchase 
of  stock,  but  the  office  did  not  destroy  the  certificates ;  on  the 
contrary,  it  kept  them,  and  applied  the  resulting  interest  to  the 
purchase  of  further  stock,  the  interest  on  which  was  turned  to 
the  same  purpose.  It  was  hoped  that  through  compound  interest 
this  system  might  produce  wonderful  results.  As  a  matter  of  fact, 
the  only  consequence  was  the  formation  of  a  sort  of  reserve,  which 
the  government  appropriated  whenever  it  required  it.^  More- 
over, the  present  plan  of  cancelling  certificates  which  have  been 
bought  has  the  same  results  as  regards  compound  interest,  and 
does  not  lead  the  government  into  the  same  temptation. 

It  is  usually  more  convenient  for  the  State  to  adopt  the  cancel- 
ling plan  than  to  reimburse  the  stock,  for  that  would  have  to  be 

^  This  is  exactly  what  used  to  happen  with  the  Enghsh  Sinking  Fund. 
See  Ricardo's  speech  of  1823,  quoted  in  his  Letters  to  Malthus,  p.  160. 
-J.B. 


578  PRINCIPLES    OF    POLITICAL    ECONOMY. 

done  at  par,  i.e.  a  sum  would  have  to  be  paid  equal  in  amount 
to  the  nominal  v-alue  of  the  stock  ;  whereas  on  the  Bourse  such 
securities  can  generally  be  purchased  below  par.  At  present  the 
3  per  cents  are  at  95,  but  they  have  been  much  below  that.  When 
redemption  is  practised  continuously  and  energetically,  it  quickly 
produces  very  large  results,  the  best  example  being  the  extraor- 
dinary reduction  of  the  United  States  debt  by  the  use  of  this 
method. 

Unfortunately,  a  prior  condition  is  that  the  budget  should  regu- 
larly and  constantly  show  a  surplus,  but  in  most  modern  States 
there  is  a  deficit.  In  such  circumstances  it  is  useless  to  think  of 
redemption,  and  it  is  then  simply  a  sham  to  resort  to  partial 
redemption,  as  is  done  in  France.  What  is  the  object  of  redeem- 
ing with  the  right  hand  and  borrowing  with  the  left? 

We  now  come  to  conversion.  No  doubt,  it  is  vexatious  for  a 
government  to  have  to  abandon  all  hope  of  extinguishing  the  capi- 
tal of  its  debt,  but  the  feeling  of  sorrow  need  not  be  a  deep  one  ; 
for,  after  all,  this  capital  is  only  a  financial  fiction,  seeing  that  it  is 
never  payable  on  demand.  The  only  real  charge  on  the  public 
debt  is  the  interest  due  on  it,  and  that  the  State  cannot  avoid 
paying.  Reduction  of  the  interest,  then,  is  as  serviceable  as 
reduction  of  the  capital ;  but  how  can  it  be  done  ?  We  might 
imagine  that  stockholders  would  never  willingly  accept  a  reduc- 
tion of  the  rate  of  interest  that  has  been  promised  them  ;  nor 
can  the  State  reduce  it  in  its  official  capacity  and  against  the  will 
of  holders  of  funds,  for  that  would  mean  a  failure  to  meet  its 
engagements,  —  in  a  word,  bankruptcy.  Is  the  problem,  then, 
insoluble  ?  On  the  contrary,  it  can  be  easily  worked  out  in  the 
following  manner. 

Some  years  ago  the  French  5  per  cents  Avere  converted  into  4^ 
per  cents  ;  the  stock  then  stood  at  107  ;  in  other  words,  was  sold  on 
the  Bourse  at  7  francs  premium,  having  been  as  high  as  117  a  few 
years  before  that.  The  government  addressed  the  fundholders 
after  this  fashion  :  "  We  offer  to  you  the  choice  between  the  two 
following  courses :  either  you  must  be  content  with  4^  per  cent 


APPENDIX.  579 

interest  for  the  future,  or  we  shall  pay  back  the  capital  we  owe 
you,  at  par,  i.e.  at  loo  francs."  For  it  must  be  remembered  that 
though  the  State  is  not  obliged  to  pay  back  the  capital  of  its 
debts,  it  has  the  right  to  do  so,  if  it  wishes.  The  alternative  it 
offers  is,  therefore,  a  sound  one.  Nor  ought  we  to  say  that  the 
French  government  acted  harshly  in  paying  back  at  lOO  francs 
stock  which  was  worth  107  francs ;  we  must  not  forget  that  this 
stock  was  issued  after  the  Franco-German  war  at  83  or  84  francs,  so 
that  this  offer  of  reimbursement  at  100  francs  meant  that  the  State 
paid  back  16  or  17  francs  more  than  it  received,  and  that  the 
fundholder  got  16  or  17  francs  more  than  he  lent.  This,  of 
course,  premises  that  the  stock  had  not  changed  hands  during  the 
interval. 

Now,  which  choice  shall  the  fundholder  make?  If  he  elects  to 
be  bought  out,  he  loses  on  the  present  value  of  his  stock,  which 
is  worth  more  than  100  francs ;  he  will  probably  lose  also  on  the 
future  value,  for  if  the  credit  of  the  State  is  maintained,  that 
stock,  even  when  converted,  will  most  likely  be  worth  more  than 
100  francs.  Now,  if  he  had  a  chance  of  finding  for  the  hundred 
francs  to  be  returned  to  him  as  safe  an  investment  and  yielding 
more  than  4^  per  cent,  say  in  first-class  government  bonds,  in 
municipal  debentures,  or  in  railway  shares,  he  might  insist  on  hav- 
ing his  money  repaid.  But  if  the  minister  of  finance  knows  his 
business  properly,  he  will  have  proposed  this  conversion  at  a  time 
when  quotations  are  high,  and  it  is  therefore  impossible  to  invest 
in  sound  securities  which  bring  in  more  than  4  per  cent  or  4^  per 
cent  at  the  outside.  Thus,  on  the  one  hand,  the  fundholder  can- 
not get  from  his  money  a  higher  rate  of  interest  than  is  offered 
him,  and  on  the  other  hand,  reimbursement  would  cause  him  loss ; 
he  will  therefore  accept  the  proposed  reduction  of  interest,  though 
perhaps  with  a  wry  face.  Though  this  conversion  of  the  5  per 
cents  was  not  made  at  precisely  the  best  time,  yet  it  was  almost 
unanimously  accepted  by  the  stockholders.  As  at  that  time  the 
arrears  of  interest  of  these  5  per  cents  amounted  to  340,000,000 
francs  (^13,600,000),  the  reduction  of  one-tenth  of  the  interest 


580  PRINCIPLES    OF    POLITICAL    ECONOMY. 

on  each  holding  of  100  francs  meant  an  annual  saving  of  34,000,000 
francs  (;!^i, 360,000)0 

Several  countries,  the  United  States  and  England  in  particular, 
practise  conversion  in  a  methodical  and  successful  manner.  Thus 
the  interest  England  pays  on  her  debt  used  to  be  3  per  cent ;  it 
is  now  reduced  to  2^  per  cent,  and  is  destined  to  be  lowered  to 
2^  per  cent. 

The  many  governments  which  have  reigned  in  France  have 
made  numerous  conversions,  but  most  of  them  have  been  badly 
managed,  and  some  of  them  have  actually  led  to  an  increase  of 
the  capital  of  the  debt  without  a  diminution  of  the  interest.  The 
history  and  details  of  these  various  operations,  and  all  connected 
questions,  may  be  studied  in  M.  Leroy-Beaulieu's  classic  treatise 
Za  Science  des  Finances. 

In  the  United  States  conversion  has  been  as  successfully  em- 
ployed as  redemption.  The  combined  use  of  these  methods  has 
wonderfully  reduced  the  interest  on  the  American  national  debt. 
Thus  they  pay  only  3  per  cent  instead  of  8|-  per  cent,  as  was  the 
case  twenty  years  ago. 

The  preceding  explanations  show  that,  for  any  conversion  to  be 
effected,  the  government  funds  to  be  operated  on  must  be  quoted 
at  a  premijim.  If,  in  our  example,  the  French  5  per  cents  had 
been  quoted  at  a  discount,  say  at  95  francs,  the  State  could  not 
possibly  have  given  the  stockholders  the  option  of  choosing 
between  repayment  at  par  and  a  reduction  of  interest.  Repay- 
ment would  have  been  instantly  selected,  for  by  that  the  holders 
would  have  received  more  than  the  actual  value  of  their  stock. 
Thus  the  State  would  have  made  a  disastrous  and  egregious 
blunder,  for  it  would  be  called  upon  to  pay  out  ^280,000,000 
which,  by  the  way,  it  did  not  possess.  Conversion  also  requires 
securities  in  general  to  be  high,  for  it  is  this  very  height  and  the 
impossibility  of  investing  his  money  for  really  good  interest,  that 
oblige  the  fundholder  to  accept  the  reduced  rate  of  interest  which 
the  State  offers  him. 

Thus  it  is  very  imprudent  for  a  government,  which  is  offering  a 


APPENDIX.  581 

loan  for  subscription,  to. issue  stock  very  much  below  par,  say 
French  3  per  cents  at  60  or  70  francs ;  for,  as  it  is  extremely  dif- 
ficult for  such  stocks  ever  to  reach  par,  the  probability  of  the 
State  being  able  to  resort  to  conversion  is  very  remote  indeed. 
The  greater  part  of  the  French  national  debt  is  in  this  form 
of  3  per  cent  stock ;  thus  the  reckless  action  of  the  government 
will  make  it  extremely  difficult  for  future  generations  of  French- 
men to  reduce  the  interest  on  the  enormous  debt  bequeathed 
to  them. 


INDEX. 


Abundance,  41,  42,  and  42  note,  50-52. 

Accidents  in  industry,  351,  513-515. 

Ad  valorem  duties,  260. 

Advances,  as  true  shape  of  capital,  132;  on 
bills,  by  banks,  286,  299,  300  note;  ordi- 
nary, 361. 

Age  and  labor,  123,  124. 

Agricultural  colonies,  550. 

Agricultural  credit,  306,  307. 

Agricultural  labor,  113. 

Agricultural  production,  154-157,  323-328. 

Agricultural  products,  330-333. 

Agricultural  syndicates,  157,  179. 

Agriculture,  methods  of,  and  laws  as  to,  100, 
154-157.  323-333,  343.  347.  446,  447.  455" 
458,  464-467.  530-532- 

Alcoholism,  35,  368,  553. 

Alglave,  on  sale  of  brandy  by  the  State,  562. 

Alienation  of  land,  433,  465,  468. 

Alms,  471. 

Almshouses,  548,  549. 

Altruism,  23. 

Anarchists,  22,  414,  557. 

Annuitants  or  persons  of  private  means,  471, 
472,  526-528. 

Appreciation  of  gold,  aog. 

Arbitrage,  298,  302. 

Arch,  in  Algeria,  446. 

Art  and  luxury,  372,  373. 

Artisan,  470,  473,  475,  476. 

Assignats,  225. 

Association,  a  mode  of  organisation  of  social 
production,  141,  142;  physiological,  142; 
forms  of,  145-150;  for  producers  and  con- 
sumers, 179;  for  loans,  307,  308;  for  re- 
ducing expenditure,  376-378;  for  improving 
condition  of  working  classes,  519;  for  pro- 
duction, by  means  of  co-operation,  522-525. 

Asylums,  548. 

Autonomous  producers,  470,  473-476. 

Average  of  life,  405. 

Baboeuf,  Gracchus,  his  communism,  410. 
Bagehot,  Walter,  on  growth  of  capital,  140; 

on  banking,  311;  on  foresight,  384. 
Balance  of  accounts,  242-246. 


Balance  of  trade,  239-242. 

Banks,  231,  232,  280;  for  deposit  and  discount, 

280;  of  issue,  280;  history  of,  280,  281 ;  for 

saving    (see   Savings   Banks) ;    land  banks 

(see   Credit  Fonder),  303-306;    people's, 

307-309;   Raiffeisen  banks,  307. 
Bank  of  England,  232,  281,  282,  311-314. 
Bank  of  France,  2o3,  217,  223,  281,  282,  286, 

309;    history  and   regulations  of,  310-312; 

318,  319. 
Bank  notes,  issuing  of,  280,  286-292,  312-319 

differences  of,  from  credit  papers,  287,  288 

differences  of,  from  paper  money,  290,  291 

with  regard  to  raising  of  rate  of  discount, 

299-303;  international,  313. 
Bank  rate,  299-303. 
Bank  reserve,  285,  313-315,  318-320. 
Bankers,  229,  232,  280. 
Bankers'  commission,  245. 
Banking  principle,  309,  316-319. 
Banking  in  the  United  States,  311,  313,  315, 

319- 
Barter,  182-185;  a  reversion  to,  233,  234. 
Bastiat,  on  pre-established  harmony,  17,  335; 

on   human   societies,  22;   on  value,  55-59; 

on   "gratuitous"   wealth,  no;   on   supply 

and  demand,  400;    on  property  and  labor, 

430;  on  value  of  land  and  labor,  444;   on 

interest,  539. 
Baudrillart,  on  luxury,  371. 
Bazard,  disciple  of  Saint  Simon,  421. 
Beaucaire,  fair  of,  178. 
Bellamy,  his  "  Looking  Backward,"  23. 
Benefit  societies,  513,  514. 
Bentham,  Jeremy,  on  productivity  of  capital, 

129;  on   escheat  of  unclaimed  property  to 

the  State,  436  note;  on  interest,  535. 
Bequest,  the  right  of,  432,  433. 
Besse,  Father  Ludovic  de,  founder  of  people's 

banks  in  France,  308. 
Bills   of  exchange,   226,   228,   229,   276,  284, 

293. 
Bimetallism,  fully  discussed    and    compared 

with  monometallism,  r98-2i3. 
Blanc,  Louis,  his  formula  for  the  distribution 

of  wealth,  420,  421, 


584 


INDEX. 


Bland  act,  the,  207. 

Bijhm-Bawerk,  Dr.,  on  wealth,  41  note;  on 
labor  and  value,  58  note;  on  factors  of 
production,  95  note;  on  time  and  labor, 
121  note;  on  function  of  capital,  132  note; 
on  "  lucrative"  capital,  133. 

Boisguillebert,  on  money,  89. 

Bounties,  257;  advantages  of,  269,  270. 

Bourne,  Stephen,  statistics  as  to  food-supplies, 
262. 

Bradlaugh,  Charles,  on  expropriation  of  land- 
owners, 468  note. 

Brass,  the  law  of,  referred  to,  80;  discussed, 
494-498. 

Bread,  price  of,  177,  505;  tax  on,  513. 

Brentano,  on  association  in  production,  148; 
on  English  working-classes,  511. 

Building  societies,  534. 

Butcher's  meat,  rapid  rise  in  price  of,  61 ; 
price  of,  affected  by  middlemen,  177;  with 
regard  to  improvements  in  transport,  180, 
33'- 

Cahet,  and  his  Icaria,  410,  411,  414. 

Cairnes,  quoted  on  exchange  and  profits,  250; 
on  distribution,  428. 

Cameron,  Verney,  quoted  on  barter  in  Africa, 
183. 

Capacities,  421,  423;  acquired,  135. 

Capital,  an  instrument  of  production,  93;  its 
part  in  production,  125-127;  supposed  pro- 
ductivity of,  127-130;  distinguished  from 
wealth,  130-135;  function  of,  according  to 
Jevons,  131,  132;  "  productive,"  133-135; 
"lucrative,"  133-135;  fixed  and  circulating, 
135-138;  divisibility  and  mobility  of,  149; 
relation  to  credit,  277-280;  distinguished 
from  objects  of  consumption  as  property, 
439-441  ;  its  conflict  with  labor,  479;  direct 
taxation  of,  566. 

Carey,  on  value,  58,  59;  on  progress  of  culti- 
vation, 457,  458. 

Cartels,  70. 

Catholic  (or  Christian)  school,  its  principles 
and  programme,  24-27;  called  Christian 
socialism,  25;  on  laws  of  inheritance,  437; 
on  French  land-laws,  466;  on  State  inter- 
ference, 517. 

Cernuschi,  on  value  of  precious  metals,  217. 

Charity  boards,  548. 

Cheapness,  as  regards  competition,  68. 

Check,  as  an  instrument  of  payment,  283. 

Child  laI)or,  517. 

Clark,  on  non-materlal  wealth,  41;  on  landed 
property  and  rate  of  wages,  464. 

Classes,  26,  27,  470-472, 


Classical  school,  16-20  (see  Lileral  school  foi 
further  details). 

Clearing  house,  232,  234. 

Climate,  97. 

Cobden,  and  the  Corn-Laws,  254;  on  Wages 
Fund,  501. 

Colins,  on  collectivism,  415;  on  distinction 
between  land  and  products,  442. 

Collectivism  and  collectivists,  150,  151;  with 
regard  to  crises,  338;  discussed,  414-418; 
as  to  inheritance,  435;  as  to  capital  and 
objects  of  consumption,  439-441;  as  to  cul- 
tivation of  land,  452,  453 ;  as  to  the  social- 
izing of  instruments  of  production,  525; 
as  to  State  interference,  557. 

Colonice,  147. 

Combination,  right  of,  509. 

Communism  and  communists,  170;  discussion 
of,  410-414,  421. 

Compcnsatw,  228,  230,  232,  299. 

Competition,  system  of,  64-71 ;  maintains 
equilibrium  in  professions  and  trades,  166; 
foreign,  177,  255,  256,  261,  265,  488;  as 
regards  State  industries,  562. 

Compound  interest,  law  of,  128. 

Comte,  Auguste,  on  political  economy  and 
sociology',  4;  on  natural  laws  in  political 
economy,  11;  on  optimism,  18. 

Condillac,  on  limitation  of  wants,  51  and 
note;  on  utility  as  cause  of  value,  54. 

Conditional  quittances,  259. 

Confusio,  ■22'ii,  230,  462. 

Considerant,   on    consumption    in    common, 

377- 

Consolidation  of  public  debt,  576. 

Consumers'  co-operative  societies  (see  Co-op- 
erative Societies  of  Consumers). 

Consumption,  relation  to  production,  334-336; 
modes  of,  359,  360;  discussion  of,  361-397. 

Conversion  of  public  debt,  576,  578-581. 

Co-operation,  in  production,  147,  148,  and  148 
note;  simple,  158;  complex,  158;  for  the 
working  of  large  businesses,  441,  480,  481; 
methods  of,  discussed,  519-525. 

Co-operative  loan  societies,  308. 

Co-operative  societies  of  consumers,  179,  386; 
discussion  of,  388,  389,  524,  525. 

Co-operative  societies  of  producers,  148,  389, 
519;  discussion  of,  522-525. 

Corn  Laws,  254. 

Cost  of  production,  as  regards  value,  65-68; 
raised  by  protective  duties,  265;  lowered 
by  bounty  system,  269;  as  regards  profits, 
482,  483:  as  regards  manual  labor  and 
wages,  495-498. 

Countervailing  duties,  271. 


INDEX. 


585 


Courcelle-Seneuil,  on  saving  as  a  form  of 
labor,  139. 

Cournot,  on  law  of  supply  and  demand,  63; 
on  monopoly,  70;  on  measure  of  value,  87. 

"  Crashes,"  339. 

Creches,  519. 

Credit,  a  mode  of  organization  of  social  pro- 
duction, 141;  in  physiology,  143,  144;  as 
regards  money,  228-233;  relation  to  capi- 
tal, 277-280;  agricultural,  306,  307. 

Credit  Fancier  (land  banks  or  landed  credit), 
303-305,  397. 

Credit  Fcmcier  de  France,  305,  306. 

Credit  operations,  273-275. 

Credit  papers,  275-277. 

Crises,  336-344;  periodicity  of,  336,  337; 
caused  by  glut  or  scarcity  of  commodities, 
337-339 ;  caused  by  glut  or  dearth  of  capi- 
tal, 339,  340;  caused  by  excess  or  dearth 
of  coin,  340,  341;  monetary,  34r;  544. 

Currency  principle  as  to  the  issuing  of  notes, 

309.  313-315- 

Currency  questions  (see //zm/;«,  Money,  Pre- 
cious Metals,  Monometallism,  Bimetal- 
lism). 

Customs  duties,  26B,  563. 

Customs  returns,  237,  238,  241,  242. 

Darwinism,  128,  402  and  note. 

Debt  (see  Public  Debt). 

Deductive  method,  4  et  seq. 

Deposits,  462,  571. 

Deposits,  in  ordinary  banking,  280-287,  289, 

310,  314;  in  savings  banks,  386-388. 
Depreciation  of  value  of  money,  504,  505. 
Desiderability,  synonym  of  value,  44. 
Difficulty  of  attainment,  as  cause  of  value,  55. 
Discount,  defined,  275;  in  banking,  280,  281, 

283-286,  310,  312,  314;  raising  of  rate  of 
(see  Rate  of  Discount). 

Discovery,  112,  113. 

Distance,  180.  > 

Distribution,  398  et  seq.;  problem  of,  406; 
formula;  of,  418-429. 

Distributive  justice,  268,  401-410,  425,  428. 

Dividends,  471,  485,  486. 

Division  of  labor,  as  mode  of  organization 
of  social  production,  141,  142;  physiologi- 
cal, 142,  143;  forms  of,  1 58-1 61 ;  conditions 
for,  160,  161;  advantages  of,  161,  162; 
disadvantages  of,  163,  164;  its  application 
to  society,  166-168. 

Donation  with  reservation  of  usufruct,  434. 

Double  uses  of  machinery,  346. 

Dowry  system,  467. 

"  Drawbacks,"  259. 


Dunbar,  Professor,    on   "  Deposits    as    Cur- 
rency," 300  note. 
Duplication  of  prices,  227. 
Dupuit,  on  final  utility,  54. 

Economic  schools,  the,  15-30. 

Economy,  political  (see  Political  Economy). 

Elberfeld  Poor  Law  System,  551,  552  and 
note. 

Electricity,  107,  153,  327. 

Ely,  Richard,  on  Labor  Movement  in  United 
States,  412. 

Employer  (or  Master),  148,  470,  477-481; 
wages  of  labor  of,  485. 

Employers'  liability,  514-516. 

Endorsement,  2S8. 

Enfantin  (disciple  of  Saint  Simon),  421. 

Entails,  465. 

Environment,  8,  94,  96-99,  141. 

Espinas,  on  natural  laws  in  political  economy, 
19;  on  association,  145;  on  division  of 
labor,  164. 

Exchange,  in  relation  to  value,  3,  72-74; 
ratio  of,  72;  as  mode  of  organization  of 
social  production,  141,  142;  physiological, 
143;  its  part  in  production,  169-172;  advan- 
tages of,  172-174;  means  of  facilitating, 
174;  its  change  from  barter  to  sale  and 
purchase,  182-185;  instruments  of,  186-188; 
rise  in  rate  of  (see  Rate  of  Exchange) ;  bills 
of  (see  Bills  of  Exchange) ;  international  (see 
International  Trade)  ;  benefits  of,  250; 
relation  to  credit,  272-274;  unfavorable, 
294,  295;  favorable,  294,  295. 

Expenditure,  360-378;  discussion  of,  361-364; 
relation  to  production,  364-366;  aims  of, 
366-369;    of    foreigners,    373-376;    public, 

554-559- 
Experiment  in  economics,  7,  8. 
Exports,  237-252,  257,  258. 
Expropriation  of  negligent  landowners,  468. 
"  Extra  Pence,"  570. 
Extractive  industry,  113,  328. 

Fair  trade,  270. 
Family  estates,  437. 
Family  life,  377. 

Family  proprietorship  of  land,  447. 
"  Family  Stock,"  26. 
Feudal  system,  448,  560. 
Five-franc  piece,  199-201,  204-206,  208. 
Forced  currency,  288,  289,  291. 
Foresight,  120,  137,  384,  514. 
Four  ages,  the,  in   relation  to  man's  knowl- 
edge of  metals,  187. 
Fourier,  Charles,  his  system,  25  and  note;  on 


586 


INDEX. 


attractive  labor,  ii8;  on  association,  145; 
on  division  of  labor,  161 ;  on  "  short  sit- 
tings," 163;  on  his  phalanstery,  351,  377, 
411,  413;  on  communism,  411;  on  inheri- 
tance, 435. 

Foville,  De,  on  economy  in  large  production, 
152;  on  income  of  French  agricultural  la- 
borers, 504;  table  of  successive  increases 
of  French  Budget,  554. 

Foxwell,  on  monopolies,  70  and  note;  on  bi- 
metallism, 202  note;  on  interest,  542. 

Free  trade,  with  regard  to  method,  8;  discus- 
sion of  question  of,  248-256;  dangers  of, 
260-264;  '"  relation  to  wages,  488. 

Free  trade  in  land,  467,  468. 

Free  will,  11-15. 

Freedom  of  contract,  517,  518. 

Freedom  of  disposal  of  property  by  will,  436- 
438. 

Freehold  landed  property,  449. 

Geddes,  Patrick,  on  fertility  of  species,  323. 

General  expenses  in  business,  reduced  by 
large  production,  152. 

General  glut,  342-344. 

General  trade,  236. 

Geographical  configuration,  98. 

Geological  constitution  of  soil,  98. 

George,  Henry,  on  unearned  increment,  459; 
"  one-tax  "  system,  463 ;  his  writings  and 
success,  465. 

Germinal,  law  of,  on  French  currency  sys- 
tem, 199,  202. 

Giffen,  on  "invisible  exports,"  243  note;  on 
machinery,  352  note;  on  land  rent  in  Eng- 
land, 459  note. 

Gift,  the  right  of,  432,  433. 

Glut,  of  commodities,  337;  of  capital,  339; 
general  (sec  General  Glut). 

Godin,  on  State  inheritance,  436  note;  his 
plan  of  profit-sharing,  524. 

"  Goods,"  42. 

Goods  for  re-exportation,  236,  259,  265. 

Goods  in  transit,  236. 

Goschcn,  G.  J.,  quoted  on  amount  of  metallic 
money  in  circulation  in  England,  221  note; 
on  The  Foreign  Exchanges,  246;  on 
banks,  311. 

Gossen,  on  final  utility,  54  and  note. 

Gresham's  law,  194-198,  203,  204. 

Gronlund,  on  socialist  ideal  in  his  "  Co- 
operative Commonwealth,"  23,  415. 

Ground,  the,  94,  96,  99-101,  gg  note. 

Ground  rent,  455-461. 

Gunston,  his  optimistic  views  as  to  the  Law 
of  Brass,  4g8. 


Heredity,  12,  37,  435. 

Historical  (or  Realist)  school,  its  method  and 
principles,  27-30. 

Hoarding,  140,  195,  196,  360,  379. 

Homes  {hospices),  548. 

Homestead  laws,  306,  468. 

Hospitals,  548. 

Houses,  building  of,  348;  number  of,  ir 
Paris,  407,  408. 

House  rent,  532-535. 

Hunting,  97;  the  decadence  of,  328;  depend- 
ence on,  prior  to  landed  property,  446;  sup- 
port from,  requires  huge  areas  of  land,  451. 

Icaria,  411,  414. 

Icarians,  351. 

"  Idleness,"  403,  526-528. 

Import-duties,  259,  260,  264-267. 

Imports,  237-252,  258-261. 

Income-tax,  407,  566-568. 

Indifference,  law  of,  65. 

Indigent,  the,  471,  472,  543-553- 

Individualism,  24,  424,  556. 

Inductive  method,  5. 

Inequality,  32,  33,  401-406. 

Inflationists,  227. 

Ingots,  an  early  form  of  money,  188,  189; 
raw,  diflTerence  of  value  of  from  coined, 
190-192. 

Inheritance,  429,  434-438,  465,  527. 

Insurance,  484, 514-516. 

Intensive  cultivation,  100,  156,  161,  451. 

Interest,  relation  to  saving,  385,  386,  471,  481, 
484.  535-542;  legitimacy  of,  535-537;  per- 
petuity pf,  539 ;  rate  of  ( see  Rate  of  Interest) . 

International  bank-note,  313. 

International  trade,  236-271;  as  barter,  237- 
240;  advantages  of,  246-250;  harmful  to 
certain  interests,  250-252. 

Invention,  112,  113. 

Investing,  355,  360;  discussion  of,  390-397. 

Irredeemable  stock,  573. 

Jevons,  Stanley,  on  method  in  science,  6;  on 
periodicity  of  crises,  14,  336,  337;  on  limi- 
tation of  wants,  51;  on  final  utility,  54  and 
note;  on  utility  as  cause  of  value,  54;  on 
law  of  indifference,  65;  on  functions  of 
precious  metals,  75;  on  fluctuations  of 
prices,  88;  on  pain  and  labor,  120;  on 
true  function  of  capital,  131,  132;  his  defini- 
tion of  coined  money,  190;  on  process  and 
factors  of  production,  424;  on  productivity 
of  labor,  499,  500. 

Joint  stock  companies,  148-150,  153,  397. 

Juglard,  on  commercial  crises,  337. 


INDEX. 


587 


Kant,  quoted  on  natural  laws,  13;  quoted  on  a 
good  will,  425;  on  first  precept  of  morality, 
480. 

Keary,  C.  F.,  on  coins,  189  note. 

King,  Gregory,  his  law,  64. 

Kitchen-gardening,  100,  156,  327. 

Knights  of  Labor,  511. 

Labor,  as  cause  of  value,  55-60,  426;  as  meas- 
ure of  value,  80-82;  as  agent  of  production, 
93,  94;  its  part  in  production,  loS-iio;  its 
method,  in;  productive,  113-118;  relation 
to  pain,  118-121;  "attractive,"  118;  rela- 
tion to  time,  121-124;  one  factor  of  capital, 
126,  439;  compulsory  association  for,  146; 
liberty  of,  166;  amount  of,  diminished  by 
progress  in  production,  348-350;  relation 
to  distribution,  423-427;  with  regard  to 
private  property,  439,  441-444;  conflict 
with  capital,  479;  manual,  494,  495,  508; 
productivity  of,  499-501 ;  relation  to  wages- 
fund,  501-503;  knights  of,  511;  unskilled, 
511;  the  right  to,  516,  517,  544;  limitation 
of  hours  of,  517-519;  field,  550. 

Labor  bureaus,  509,  558. 

Labor  exchanges,  507. 

Labor  legislation,  29,  5x3-519. 

Labor  notes,  75. 

Labor  party,  499,  512,  513. 

Laisser /aire,  17,  28,  253,  316,  504. 

Land,  93;  formerly  used  for  "nature,"  96; 
not  identical  with  "  ground,"  99 ;  as  regards 
agriculture  (see  Agriculture /a^jz'w) ;  equal 
division  of,  419,  420;  distinguished  from 
products,  441-445;  historical  evolution  of 
property  in,  445-450;  periodical  divisions 
of,  446,  447;  mobilization  of,  449;  legiti- 
macy of  property  in,  451-455;  "living," 
454;  "dead,"  454;  rent  of  (see  Rent) ;  un- 
earned increment  of  (see  Unearned  Incre- 
ment);  temporary  concessions  of,  461-463; 
nationalization  of,  461-464,  534,  535,  561 ; 
divisibility  of,  466;  transmissibility  of,  466; 
free  trade  in,  467,468. 

Land  banks,  303-305  (see  Credit  Fonder^. 

Land  laws,  454,  461-469. 

"  Landlord,"   the,  532. 

Landowners,  number  of,  in  France,  466;  not 
a  distinct  class,  471,  472,  530,  531. 

Land  tax,  569. 

Large  businesses,  150,  152. 

Large  farming,  154-157. 

Large  production,  advantages  and  disadvan- 
tages of,  150-154;  economy  resulting  from, 
15X,  152;  in  agriculture,  154-157,  453;  as 
regards  isolated  production,  474,  475. 


Large  property,  157,  465,  468. 

Laroche  Joubert,  profit-sharing  in  his  manu- 
factory, 520,  note. 

Lassalle,  Ferdinand,  as  coUectivist,  415;  on 
the  law  of  brass,  495,  498;  on  producers' 
co-operative  societies,  523. 

Latifundia,  467,  468. 

Latin  union,  on  the  currency  question,  204, 
206,  207. 

Laveleye,  Emile  de,  quoted  on  positive  laws 
in  political  economy,  e8;  on  advantages  of 
exchange,  173,  174;  on  crises,  336,  337, 
341;  on  luxury,  370,  371;  on  communistic 
societies,  411,  412;  on  distinction  between 
land  and  products,  442;  on  the  Russian 
mir,  447;    on  the   Bulgarian   Zadrugas, 

447.  448- 

Law,  his  paper  money,  219;  his  bank,  281. 

Lawrence,  on  United  States'  customs  tar- 
iff, 267-268. 

Leases,  of  land  in  farms,  529-532. 

Legal  tender,  defined,  190;  199,  205;  distin- 
guished from  forced  currency,  288,  289. 

Le  Claire,  founder  of  profit-sharing,  520. 

Le  Play,  his  school,  26  and  note;  on  "  family 
stock,"  26;  on  environment,  97;  on  home- 
stead laws,  306  note;  on  division  of  landed 
property  in  France,  466. 

Le  Trosne,  on  exchange,  171. 

Leroy-Beaulieu,  Paul,  on  division  of  prop- 
erty, 9;  doctrines  of  liberal  school,  16,  17; 
on  double  uses  of  machinery,  346;  on  lux- 
"■"Yi  37^  >  o"  poverty  and  disease,  405;  on 
millionnaires  in  France,  407 ;  on  collectivism, 
416;  on  profit-sharing,  520;  on  landowners 
and  farmers,  530;  on  fall  of  rate  of  interest, 
542;  on  functions  of  the  State,  556;  on 
French  public  debt,  572;  on  conversion  of 
French  public  debt,  580. 

Letting,  the  right  of,  431. 

Liberal  school,  the  (or  classical),  principles 
of,  16-20;  on  the  social  problem,  398,  399; 
on  laws  of  inheritance,  437,  438;  on  free 
trade  in  land,  467;  on  State  interference,  517, 
S55.  556;  on  profit-sharing,  521;  on  co- 
operation, 525;  on  legal  relief,  545-547. 

Liberal  professions,  the,  1x5,  470. 

Liberty  of  b>inking,  3x3,  316. 

"  Liberty  of  coinage,"  193,  194. 

Liberty  of  labor,  166-168. 

Loans,  as  regards  credit,  272-278,  305;  with 
regard  to  interest,  535-538;  public,  572- 
S7S- 

Lock-out,  509,  543,  544. 

Loua,  on  mortality  of  classes  in  Paris,  405. 

Luxury,  369-373;  public,  373. 


588 


INDEX. 


Machinery,  105-107;  a  factor  of  progress  of 
productions  and  its  drawbacks,  345-356. 

Macleod,  H.  D.,  on  money,  90;  on  Gresham's 
law,  194  note;  on  credit  papers  as  wealth, 
278. 

Mallock,  W.  H.,  quoted  on  social  inequality, 

33- 

Malthus,  his  laws,  6,  320-323;  his  theories 
referred  to,  128,  451  note  ;  anticipates 
Ricardo  in  teaching  theory  of  rent,  455 
note;  his  principles,  with  regard  to  the 
wages-fund,  502. 

Mancipatio,  188,  445. 

Manufactured  products,  330-333. 

Manufacturing  industries,  113,  329. 

Markets,  law  of,  342-344. 

Marshall,  Professor,  on  distribution  of  labor, 
16S  note. 

Marx,  Karl,  his  works  on  .socialism,  23;  on 
theories  of  value,  55,  56,  59;  on  measures 
of  values,  80,  81;  his  definition  of  capital, 
138;  collectivism,  415,  416;  his  formula  for 
distribution  of  wealth,  426,  427;  on  capital 
and  labor,  439;  on  autonomous  producers, 
474- 

Master,  the  (or  Employer),  148,  470,  477-481. 

Mathematical  method  in  economics,  7,  54,  55. 

Maximum  of  issue  of  bank-notes,  315,  318,  319. 

Maximum  of  landed  estates,  468. 

Maximum  price,  513. 

Maximum  wage,  513. 

Mazzola,  on  "  non-material "  wealth,  41 ;  on 
taxation,  560. 

Menger,  on  final  utility,  54. 

Mercantile  system,  89,  235. 

Merchandise,  168. 

Metayage,  491,  530,  531. 

Middlemen,  174,  176-178,  389. 

Mill,  James,  on  unearned  increment,  463. 

Mill,  John  Stuart,  quoted  on  prediction  in 
political  economy,  15;  on  government  by 
classes,  26;  on  supply  and  demand,  63;  on 
one  argument  of  protectionists,  268;  on 
future  of  production,  357;  on  spendthrifts, 
364;  quoted  on  .ibstention  from  consuming, 
394;  on  inequality  of  wealth,  406;  on  un- 
earned increment,  463;  on  profits  and  cost 
of  production,  483  note;  on  wages-fund 
and  population,  502;  on  an  "idle"  class, 
527.  528. 

Minimum  of  landed  estates,  468. 

Minimum  wage,  512. 

Mining  concessions,  to  be  temporary,  463. 

Mints,  193,  203-206. 

Mir,  the  Russian,  419,  447. 

Mobilization  of  landed  property,  304,  449. 


Molinari,  De,  on /azjjcrya/V^,  17;  on  joint- 
stock  companies,  149;  on  autonomous  pro- 
duction, 474;  proposes  labor  exchanges, 
507. 

Money,  relation  to  value,  46;  as  measure  of 
values,  75;  relation  to  price,  82;  variations 
in  value  of,  83-88 ;  as  wealth,  8S-92 ;  powers 
of,  90-92;  "hard,"  91,  237,  379;  sterility 
of,  128;  as  capital,  135;  relation  to  forma- 
tion of  capital,  139,  140;  hoarding  of,  140, 
195;  as  "a  common  third,"  174,  182-185; 
coined,  development  of,  188-190;  legal,  190, 
198;  right,  191;  heavy,  191;  light,  192; 
clipping  of,  192;  token,  193,  194,  199,  204, 
224;  payment  abroad  of,  196;  sale  by 
weight  of,  196;  relation  to  monometallism 
and  bimetallism,  198-213;  metallic,  com- 
pared with  paper  money,  215-222;  siege, 
219;  metallic,  amount  of  in  circulation, 
221  and  note;  replacement  of  by  credit 
methods,  228-233;  its  part  in  international 
trade,  238-242;  artificial  scarcity  of,  303; 
depreciation  of,  332,  504;  excess  or  dearth 
of,  as  cause  of  crises,  340,  341 ;  relation  to 
expenditure,  362;  relation  to  expenditure 
of  foreigners,  373-376;  relation  to  saving, 
379-381 ;   relation  to  investing,  390-394. 

Monometallism,  198,  199;  discussion  of,  207- 
211. 

Monopoly,  in  production,  68-71 ;  of  banking, 
309-313,  318,  319;  of  landed  property,  455, 
464;  as  yielding  State  revenues,  561-563. 

Mont-de-Piete,  516. 

Moral  restraint,  321. 

Mortgage,  273,  304,  305. 

Mortmain,  466. 

Motive  forces,  96,  103-107. 

Movable  goods,  441,  445,  453. 

Mutual  loan  societies,  307. 

National  workshops,  517. 

Nationalization  of  the  land,  various  systems 
of,  461-464;  534,  535,  561. 

Natural  laws  in  political  economy,  9-16; 
views  of  liberal  school  on,  16-20;  views  of 
socialist  school  on,  22;  views  of  Catholic 
school  on,  24,  25;  views  of  historical  school 
on,  28-30. 

Natural  price,  495. 

Natural  selection,  403,  546. 

Natural  wages,  493. 

Natural  wealth,  log,  no. 

Nature,  95;  defined,  96;  its  mode  of  collabo- 
rating with  man  for  production,  96  et  seq. 

Not  product,  482,  483. 

Nijni-Novgorod,  fair  of,  178. 


INDEX. 


589 


Nordhoff,  on  communistic  societies,  4x2,  413. 
Note  to  order,  276. 
Novatio,  228. 

Occupation,  as  origin  of  rights  of  property, 

430.  431- 
Octrois,  570. 
Optimism,  18,  351-355.  442.  443,  459,  486,  499, 

552- 
Owen,  Robert,  his  Malthusian  practices,  321 
note;   his  works  and  projects,  410,  411 ;  on 
size  of  communistic  societies,  413. 

Paepe,  Cesar  de,  inventor  of  name  Collectiv- 
ism, 414  note. 

Pain,  a  factor  of  labor,  118-121;  necessary 
for  saving,  383,  384. 

Palgrave,  R.  H.  Inglis,  article  on  "Abun- 
dance" in  his  Dictionary  of  Political 
Economy,  42  note;  article  on  "  Banking" 
in  his  Dictionary  of  Political  Economy, 
281  note;  his  paper  on  "  Note-circulation" 
referred  to,  300  note. 

Palmstruch,  inventor  of  bank-notes,  287. 

Pantaleoni,  on  hypothesis  in  political  econ- 
omy, 7  ;  on  "  non-material  "  wealth,  41 ;  on 
distribution  of  wealth  in  Italy,  407;  on  the 
determination  of  the  rate  of  wages,  493,  494. 

Paper  money,  in  relation  to  Gresham's  law, 
197;  representative,  214;  fiduciary,  215; 
conventional,  215;  differences  of  value  of, 
from  value  of  metallic  money,  216-219; 
antiquity  of,  219;  relation  to  wealth,  219- 
224;  advantages  of,  to  a  country,  222; 
advantages  of,  to  a  government,  223;  dan- 
gers of,  224 ;  signs  of  excess  of,  225-227 ; 
replacement  of,  by  credit  methods,  228-232; 
compared  with  bank-notes,  290-292;  reason 
of  trade  in,  295;  depreciation  of,  297-298. 

Par,  rate  of  exchange  at,  294;  government 
loans  at,  573. 

Partnership,  for  production  and  not  for  dis- 
tribution, 147;    various  forms  of,  490,  491, 

519.  530,  531- 
Partners,  sleeping,  523. 
Passy,  Hippolyte,  on  small  farming,  155. 
Pauperism,  403-405,  471,  472,  543-553. 
Peasant   proprietors,  464,  465,  473,  475,  476, 

530- 

Pecqueur,  a  collectivist,  415. 

People's  banks,  307-309. 

Periodicity  of  crises,  14,  336,  337. 

Perpetuity  of  property,  434,  435. 

Phalanstery,  164,  351,  377,  411,  413. 

Physiocrats,  on  natural  laws  in  political  econ- 
omy,  11;    on  productive   labors,   113;    on 


exchange  and  wealth,  170,  171 ;  on  laisser 
/aire,  253. 

Political  economy,  object  of,  1-4;  definition 
of,  i;  etymology  of,  2;  relation  to  other 
sciences,  3;  method  in,  4-9;  natural  laws 
in,  9-15;   various  schools  of,  15-30. 

Poor  laws,  549. 

Poor  rate,  546-549. 

Precious  metals,  decadence  of,  61,  234,  235; 
as  measure  of  value,  75-78;  as  instrument 
of  exchange,  186;  advantages  of,  187,  188; 
choice  of,  as  legal  money,  198;  legal  ratio 
(155)  between,  in  France,  200;  relation  to 
monometallism  and  bimetallism,  198-213; 
legal  ratio  between,  in  United  States,  207; 
variations  in  quantity  of,  210;  industrial 
use  of,  212,  238;  annual  production  of,  222. 

Prediction,  12-16. 

Premium  on  gold,  225;  on  foreign  paper,  293. 

Prescription,  as  regards  rights  of  property,  431. 

Price  and  prices,  as  regards  value,  46,  47 ;  as 
regards  competition,  64-69,  72;  definition 
and  discussion  of,  82-84,  86-88;  rise  in, 
consequent  on  excess  of  paper  money,  226, 
227;  in  international  trade,  239,  240;  in- 
fluenced by  protection,  265-269;  affected 
by  law  of  decreasing  returns,  330-332;  dur- 
ing crises,  338,  339;  natural,  495;  general 
rise  in,  504,  505,  509. 

Primogeniture,  437,  465. 

Producers'  co-operative  societies  (see  Co-op- 
erative Societies  of  Producers). 

Production,  93-358  passim  ;  individual,  93- 
95;  social,  141;  insufficiency  in,  320;  ex- 
cess in,  334;  progress  in,  345;  future  of, 
356;  large  (see  Large  Production);  cost  of 
(see  Cost  of  Production). 

Professional  beggars,  553. 

Professional  risk,  theory  of,  515. 

Profits,  as  regards  competition,  69,  470;  legiti- 
macy of,  477-481 ;  laws  of  and  relation  to 
wages,  482-488;  as  regards  profit-sharing, 
520,  521 ;   rate  of  (see  Rate  of  Profits). 

Profit-sharing,  147;  methods  and  discussion 
of,  519-522,  524. 

"  Progress  of  cultivation,"  456-458. 

Property,  private,  350,  351 ;  rights  of,  430- 
438;  extent  of,  438-445;  in  land,  442-469; 
large  (see  Large  Property) ;  small  (see 
Small  Property). 

Protection,  248-250,  252-271;  history  of,  253, 
254;  system  of,  256-260;  dangers  feared  by 
supporters  of,  260-264;  disadvantages  of, 
264-269;  moderate  forms  of,  270,  271. 

Proudhon,  his  works  on  socialism,  23;  on 
wealth  and  value,  42;    quoted  on  time  as 


590 


INDEX. 


measure  of  value  of  labor,  426;  on  le- 
gitimacy of  interest,  539;  on  "  gratuitous" 
credit,  542. 

Public  debt,  570-581 ;  registered,  571. 

Public  expenditure,  554-559. 

Public  health,  559. 

Public  kitchens,  378. 

Public  loans,  397,  572-575;  "  classing  "of,  574. 

Public  luxury,  373. 

Public  revenue,  559-570. 

Public  relief,  547-552,  559. 

Public  servants,  471. 

Public  services,  153. 

Quesnay,  on  natural  laws,  11;  on  exchange, 
171. 

Raiffeisen  banks,  307. 

Railways,  as  means  of  transport,  181,  182; 
their  costliness  as  regards  life,  351;  owned 
by  the  State,  453-455,  562,  563. 

Rate  of  discount,  299-303;  reasons  for  the 
raising  of,  299,  300;  results  of  the  raising 
of,  302,  303;   311. 

Rate  of  exchange,  rise  in,  resulting  from 
excess  of  paper  money,  226,  227;  explana- 
tion and  discussion  of,  292-298. 

Rate  of  interest,  340,  486;  theory  of  progres- 
sive fall  of,  discussed,  539-542. 

Rate  of  profits,  482-486;  its  relation  to  the 
rate  of  wages,  486-488. 

Rate  of  wages,  its  relation  to  the  rate  of  prof- 
its, 486-488;  the  laws  regulating,  492-494; 
theories  with  regard  to,  494-503;  discussion 
of  rise  in,  503-510. 

Ratio  of  exchange,  72. 

Ratio,  legal,  between  precious  metals  in 
France,  200;  in  United  States,  207. 

Raw  material,  94,  loi,  102,  113. 

Realist  (or  historical)  school,  27-30. 

Reciprocity,  270. 

Redemption  of  public  debt,  576-578. 

Registered  debt  in  France,  571. 

Registration  duties,  564. 

Relief,  the  right  to,  543-547;  public,  the  prin- 
ciples and  practice  of  the  organization  of, 
547-552;  outdoor,  548,  551,  552. 

Rent  of  land,  discussion  of  theories  of,  455- 
461;  471;  in  relation  to  various  systems  of 
landowning  and  tenure,  529-532. 

Rent  of  houses,  471,  532-535. 

Res  ftingibileSf  273. 

Returns,  decreasing  or  non-proportionate,  law 
of,  as  applied  to  agriculture,  323-328;  rela- 
tion to  other  industries,  328-333;  relation 
to  Ricardo's  theory  of  rent,  457. 


Ricardo,  his  use  of  deductive  method,  4-6; 
on  labor  and  value,  57,  58;  his  theory  of 
rent,  455-458;  on  rale  of  profits  and  of 
wages,  486  and  note  ;  relation  to  law 
of  brass,  496;  on  English  sinking  fund, 
577  note. 

Rich,  the,  403,  407,  408. 

Roads,  as  means  of  transport,  181,  182. 

Robin,  on  the  modes  of  administering  relief, 

550- 
Rochdale  pioneers,  388,  524  note. 
Roscher,  his  treatise  on  political  economy,  27; 

on  sumptuary  laws,  370. 
Running  account,  286. 

Saint  Simon,  his  system  of  distribution  of 
wealth,  421-423;  on  abolition  of  inheritance, 

435- 

Sale,  the  right  of,  431,  432. 

Sale  and  purchase,  174,  182-185. 

Sale  for  cash  on  delivery,  228. 

Sale  for  cash  or  payment  at  a  future  date,  228, 
275. 

Saving,  discussed,  139,  140,  379-389;  causing 
glut  of  capital,  339;  360;  367;  distinguished 
from  investing,  379,  380;  conditions  neces- 
sary for,  382-386;  institutions  for,  386-389; 
automatic,  388. 

Savings  banks,  386-388. 

Say,  J.  B.,  on  wealth  and  value,  41,  42;  on 
utility  as  cause  of  value,  54;  on  his  l.iw  of 
markets,  342,  343;  on  harmful  expenditure, 
368;  on  law  of  brass,  496. 

Scarcity,  as  a  cause  of  value,  55. 

Schaffle,  on  socialist  ideal,  23;  on  analogies 
between  social  and  biological  laws,  144. 

Schmoller,  on  division  of  labor,  159  and  note, 
165;  on  traders,  175. 

Schulze  Delitzsch,  people's  banks  in  Ger- 
many, 308. 

Sea-carriage,  181. 

Services,  as  regards  non-materi.al  wealth,  40, 
41;  as  regards  distribution,  399-401,  403. 

Shakers,  society  of,  413. 

Shopkeeper,  175,  473-476. 

Silver  P.ill,  in  United  States,  208. 

Sinking  fund,  577  and  note. 

Small  farming,  its  present  and  future,  154-157, 

474,  475- 

Small  industry,  107  note,  154,  474-476. 

Small  property,  157,  466-468. 

Smith,  Adam,  on  definition  of  political  econ- 
omy, 2;  eclipses  physiocrats,  11;  on  l.ibor 
and  value,  80;  quoted  on  labor  and  value, 
81;  on  productive  labor,  114;  on  fixed  and 
circulating  capital,  135,  136;  on  division  of 


INDEX. 


591 


labor,  159,  163  note;  on  exchange,  173; 
on  paper  money  and  wealth,  220-222;  men- 
tioned with  regard  to  laisser  /aire,  253. 

Socialist  school,  21-24;  on  inheritance,  434, 
435,437;  on  co-operation,  525;  on  progres- 
sive taxation,  567. 

Socialism,  Christian,  25  (also  see  Catholic 
School). 

Socialism,  Christian  and  not  Catholic,  26  and 
note. 

Socialism  of  the  Chair  (also  see  Historical 
School),  27;  on  State  interference,  517. 

Socialism,  scientific,  21. 

Socialism,  State  (also  see  Historical  School), 
29.  516,  556,  561. 

Social  question,  398  ei  seq.  ;  various  solutions 
of,  410-429. 

Social  solidarity,  27,  29,  165,  424. 

Special  trade,  236,  241. 

Specific  duties,  260. 

Spencer,  Herbert,  as  sociologist,  4;  on  natural 
laws  in  political  economy,  11;  quoted  for 
analogies  between  sociological  and  biologi- 
cal laws,  143,  144;  quoted  on  interdepen- 
dence of  trades  and  manufactures,  165; 
referred  toon  law  of  population,  323;  quoted 
on  inequality,  402;  on  distinction  between 
land  and  products,  442;  quoted  on  evolu- 
tion of  landed  property,  445;  on  conquest 
and  landed  property,  448;  on  future  of 
landed  property,  450. 

Stamp  duties,  564. 

State  functions,  22,  23,  555-559. 

State  interference,  28-30,  429,  506,  507,  512- 
519-  556-558- 

State  lands,  560,  561. 

State  monopolies  and  industries,  71,  561-563. 

State  property,  453,  454. 

State  railways,  453,  562. 

State  socialism  (see  Socialism,  State). 

Statistics,  in  economics,  9,  12. 

Steam-engine,  the,  105-107,  356,  475. 

Strikes,  506;   discussed,  509,  5x0. 

Succession  ab  intestato,  435-438. 

Succession  duties,  469,  564. 

Sumner,  Graham,  on  occupation,  430,  431. 

Sumptuary  laws,  370. 

Superannuation  fund,  514,  516,  524. 

Superannuation  office,  516. 

Supply  and  demand,  law  of,  stated  and  ex- 
plained, 62-64;  3S  regards  division  of 
labor  in  society,  166,  167;  335;  as  regards 
wages,  507,  508. 

Surplus  value  (see  Unearned  Increment). 

Taxation,  562-570. 


Taxes,  at  a  fixed  rate,  570;  at  a  proportional 
rate,  570;  direct,  564-570;  indirect,  563;  on 
doors  and  windows,  569;  on  income,  566- 
568;  on  land,  569:  on  personal  and  movable 
property,  569;  on  trade  licenses,  569;  on 
stocks,  569. 

Tenure,  448. 

"Third  commodity"  (common  third),  174, 
186,  187. 

"  Three-Eights,"  the,  122. 

Thiinen,  Von,  on  natural  wages,  493. 

Time,  a  factor  of  labor,  121-124;  relation  to 
remuneration  of  labor,  426. 

Tools,  94,  103. 

Torrens  act,  304,  449,  450,  468. 

Trade,  174,  179;  general,  236;  international 
(see  International  Trade)  ;  special,  236-241. 

Trade  unions,  510-512. 

Traders,  174;  history  of,  175;  advantages  of, 
176;  disadvantages  of,  176-178;  in  social 
evolution,  233. 

Trades,  158-161;  distribution  of,  166,  167. 

Transference,  law  of,  267. 

Transfers  of  items,  232. 

Transport,  102,  114,  174,  178-182,  187,  243. 

Treasury  bills,  572,  577. 

Treaties  of  commerce,  254. 

Trusts,  70,  329. 

Tufierd,  on  distribution  of  labor,  168. 

Turgot,  removes  restrictions  on  labor,  167; 
states  terms  of  law  of  brass,  496 ;  on  interest, 
536;  on  fall  of  rate  of  interest,  541. 

"Uncovered"  (lying),  286. 

Unearned  increment,  444,  459,  460-463,  529. 

"  Union,"  the,  551. 

Union,  Latin  (see  Latin  Union). 

Urban  population,  growth  of,  533. 

Usury,  535. 

Utility,  as  cause  of  value,  54,  59. 

Utopia,  410,  411. 

Utopians,  20,  21. 

Vagrants  and  vagabonds,  544, 550,  553 ;  French 
law  on,  550,  551. 

Value,  basis  of  political  economy,  3;  relation 
to  wealth,  41-43;  discussion  of,  44-47 ;  sub- 
jective and  objective,  44  note,  45;  causes 
and  theories  of,  47-60;  variations  and  oscil- 
lations in,  60-64 ;  influenced  by  competition, 
64-71 ;  relation  to  cost  of  production,  65-68 ; 
relation  to  exchange,  72-74;  measure  of, 
74-88;   tables  of  variations  in,  88;  normal, 

495- 
Values,  commission  on,  245. 
Vico,  his  circles,  233. 


592 


INDEX. 


Victuals,  131. 

Vidal,  a  collectivist,  415. 

Wages,  471,  489;  of  employer's  labor,  485; 
of  superintendence,  486;  Rate  of  (see  Rate  of 
Wages);  contract  of,  489-492;  minimum  of, 
494,  497,498;  theories  of,  494-503;  rise  in, 
503-506;  fixed  minimum  of,  512;  fixed  max- 
imum of,  513. 

Wages-earners,  471,  472,  489,  506,  513-525. 

Wages  fund,  354,  355,  501,  503. 

Wages  system,  147,  490,  492. 

Walker,  General  Francis  A.,  denies  depreci- 
ation of  government  securities  in  United 
States  in  times  of  crisis,  315  note;  his 
theory  of  the  productivity  of  labor,  499. 

Wallace,  A.  R.,  on  distinction  between  land 
and  products,  442. 

Walras,  on  hypotheses  in  political  economy,  7; 
on  final  utility,  54 ;  on  scarcity  as  cause  of 
value,  55;  on  capital,  133;  on  distinction 
between  land  and  products,  442. 

Wants  of  man,  the,  3,  34-37,  47-S4>  357-358, 
497.  498- 


Wars,  present  or  prospective,  a  cause  of  in- 
creased public  expenditure,  555. 

Wealth,  as  object  of  political  economy,  1-3; 
double  meaning  of,  31,  32;  motives  for 
seeking,  32,  33;  definition  of,  38;  question 
of  materiality  of,  40,  41;  relation  to  value, 
41-43;  relation  to  metallic  money,  88-92; 
natural,  109,  no;  gratuitous,  no;  the  first, 
127;  distinguished  from  capital,  130-135; 
relation  to  exchange,-  169,  170;  relation  to 
paper  money,  220;  relation  to  credit,  273- 
275,  278;  relation  to  increase  of  population, 
320;  insufficiency  of,  357,  406,  408;  employ- 
ments of,  359,  360;  inequality  of,  401-406; 
active,  415;  formulae  for  division  of,  418 
et  seq. 

Wirth,  Max,  on  crises,  337  note;  on  con- 
quest and  wages,  489  note. 

Women,  limitation  of  hours  of  labor  of,  517, 

519- 
Workhouse,  the,  550. 
Wuarin,  on  taxation,  555. 

Zadrugas,  the,  of  Bulgaria,  447. 


CENTRAL  UNIVERSITY  LIBRARY 
University  of  California,  Saxi  Diego 

DATE  DUE 


DEC  1 3  1980 

■    -     ■  -  — 

CI  39 

UCSD  Libr. 

UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


AA    001  121  315   4 


